Distillate Inventories Rise Marginally in Week Ending July 17
Crude Oil Stocks Were Up Last Week, Pressuring WTI
Distillate inventories
The EIA (U.S. Energy Information Administration) released its “Weekly Petroleum Status Report” on Wednesday, July 22. The report said distillate inventories increased by 0.2 million barrels (or MMbbls) to 141.5 MMbbls in the week ended July 17. Analysts were expecting a much larger increase of ~1.8 million barrels.
What this means
A less-than-expected increase in distillate inventories is bullish for distillate prices. Higher prices may encourage refiners such as Tesoro (TSO) and Marathon Petroleum (MPC), as well as refining MLPs such as CVR Refining (CVRR) and Calumet Specialty Products Partners (CLMT), to produce more distillates. Higher distillate prices mean higher revenues for these refiners. But higher profits will need crude oil prices, which is a cost for refiners, to remain steady or relatively lower.
TSO and MPC combined make up 2% of the iShares US Energy ETF (IYE).
When production volumes for distillates rise, it is positive for MLPs such as Phillips 66 Partners (PSXP) and MPLX LP (MPLX), which transport refined products. These MLPs stand to make more money by transporting higher volumes of distillate.
Usually, if the actual increase in inventories is less than analysts’ expectations, it implies that demand was more than anticipated or that supplies were less than anticipated. This is bullish for distillate prices. However, if the increase is more than analysts’ expectations, it implies that demand was less than anticipated or that supply was more than anticipated. This is bearish for distillate prices.
Plus, as you can see in the chart above, inventories are in the middle of their five-year range. If inventories continue to rise sharply, they may drift into the upper end of the five-year range. This can end up pressuring distillate and crude oil prices in the weeks to come.
Check out our latest weekly diesel (a distillate) price analysis at Diesel Prices Fall Again, Averaging $2.782 per Gallon.
Background
Distillates, or fuels such as heating oil and diesel, are also an important group of fuels. They’re used for purposes ranging from transportation to heating. Distillate demand also drives crude oil demand and crude oil prices. So energy investors watch distillate inventories closely.
In the next part of this series, we’ll look at the latest distillate demand and supply trends.
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