WTI Up on Inventory Data; Ignores Gasoline, Distillate Build
US crude oil inventories
In its weekly Petroleum Status Report released on Wednesday, September 16, the EIA (U.S. Energy Information Administration) reported a decrease of 2.1 MMbbls (million barrels) in crude oil inventories for the week ended September 11. Analysts were expecting an increase of 2 MMbbls.
What does this mean?
An unexpected inventory draw is usually bullish for crude oil prices. This would be positive for major oil producers like Apache (APA), Cimarex Energy (XEC), and Occidental Petroleum (OXY). All of these companies are part of the Energy Select Sector SPDR ETF (XLE). They account for ~5.7% of the fund.
Higher prices may also encourage these upstream companies to produce more crude oil. This would mean that higher volumes are transmitted by MLPs like Plains All American Pipeline (PAA). This would boost revenues for these MLPs.
After the release of the bullish data on September 16, WTI (West Texas Intermediate) crude oil prices jumped ~5.7% compared to the previous close and settled at $47.15 per barrel.
Background on crude oil inventories
After touching a peak of 490.9 MMbbls in the week ended April 24, inventories started turning downward for the first time in four months in the week ended May 1, as you can see in the above graph.
Since May this year, inventories have mostly been declining as refiners have been operating at high levels during the summer driving season. However, recent trends have been patchy, with the surprise drop in inventories last week serving as a recent example.
Typically, crude oil inventories rise during this time of the year, as refiners enter fall maintenance season and reduce their demand for crude inputs. The decrease in inventories was likely driven by refiners’ motivation to capitalize on refiner margins, given the cheaper price of crude oil. We’ll be looking at refinery input trends later in this series. Inventories now stand at ~455.9 MMbbls.
Importance of crude oil and inventories
Crude oil is one of the most important energy sources for the world. Its refined products have several applications ranging from powering cars to building roads. Crude oil prices are important not only for individuals but also for global economies and industries. Supply and demand trends determine crude oil price trends.
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