Evaluating the Short Run Effects of U.S. Crude Oil Inventory Levels on WTI Crude Oil Price from 1993 – 2013

The focus of this paper was to investigate the influence of U.S crude oil inventories on WTI crude oil prices and the extent of impact in the short-term, from 1993 to 2013. The experiment important for consumers, traders and policy makers who wish to reduce the persistent and growing price volatility of crude oil and its related products as well as businesses such as airline companies who wish to make annual budgetary sales decisions. Empirical data on WTI price and crude US Crude Oil inventories were analysed using an OLS regression, cointegration, VECM and Ex-post forecast techniques. The findings provide evidence of an inelastic relationship in which a 1% increase in U.S crude oil inventories is associated with 0.46% decrease in WTI crude oil prices; however this was only valid for 22% of WTI crude oil price variations. We also find that past data of U.S crude oil inventories could be used to predict future WTI crude oil prices movement. However, as opposed to literature, the results of VECM analysis indicated there is no short-run relationship between both variables over the trajectory