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Oil Inventories Popped Higher... And That's Okay

Oil inventories rose for yet another week as production levels remained stubbornly high.

In spite of this, however, the overall situation for petroleum products improved materially, sending total crude plus petroleum products lower week over week.

Add to this the fact that output will eventually fall further and that demand for energy products is materially higher, and the picture still looks quite bullish for oil investors.

Oil prices soared more than 6% during afternoon trading on October 28th after news broke that the EIA (Energy Information Administration) reported a build in crude, but a drop in most petroleum products categories. While this news is mixed in nature, the big drop seen across most of the spectrum shows not only that demand is high, but that the organization's estimate of year-end inventory levels is very much still in play. In what follows, I will dig into the oil data and explain why this is bullish for energy companies like Linn Energy (NASDAQ:LINE) / LinnCo (NASDAQ:LNCO), Breitburn Energy Partners (NASDAQ:BBEP), Approach Resources (NASDAQ:AREX), and Transocean (NYSE:RIG), along with those invested in the United States Oil ETF (NYSEARCA:USO).

A look at inventory levels

In the graph below, you can see what the crude oil situation currently looks like. According to the EIA, inventories for the week rose by 3.4 million barrels, from 476.6 million to 480 million. This implies that we are at our highest storage levels since the middle of May of this year, but the data did come in slightly better than the 4.1 million barrel build estimated by the API (American Petroleum Institute). While all of this looks generally bad, investors should consider that we are still below...