Why Did the Crude Oil Market Rise despite Bearish Fundamentals?
Distillate production
On March 2, 2016, the EIA (U.S. Energy Information Administration) published the This Week in Petroleum report. The rise in the distillate production led to the rise in distillate stocks. To learn more about distillate stocks, read the previous part of this series. The EIA reported that the US distillate production rose by 363,000 bpd (barrels per day) to 4.8 MMbpd (million barrels per day) for the week ending February 26, 2016.
Distillate demand and import
The US distillate production rose despite the fall in the US distillate demand. The distillate demand fell by 34,000 bpd to 3.4 MMbpd for the week ending February 26, 2016. The current distillate demand is 17% lower than the levels in 2015. The fall in the demand for refined products has a negative impact on refiners like PBF Energy (PBF), Sunoco (SUN), and Marathon Petroleum (MPC). However, US distillate imports rose marginally to 0.3 MMbpd for the week ending February 26, 2016.
Impact
The current distillate production is 4% more than the level of 4.6 MMbpd in 2015. The rise in distillate supplies and imports will continue to put pressure on oil prices. Distillate is the refined form of crude oil. The fall in the oil demand will have a negative impact on oil producers like Swift Energy (SFY), Energy XXI (EXXI), and Goodrich Petroleum (GDP). However, record-high refined product supplies and stocks benefit oil and gas storage and transportation companies such as Williams Companies (WMB) and Kinder Morgan (KMI).
ETFs and ETNs such as the VelocityShares 3x Inverse Crude Oil ETN (DWTI), the Direxion Daily Energy Bull 3X Shares ETF (ERX), and the iShares U.S. Energy ETF (IYE) can be used to diversify your exposure to oil and gas companies.
Read the next part of the series to learn more about US crude oil production.
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