Why Did the Crude Oil Market Rise despite Bearish Fundamentals?
US crude oil imports
On March 2, 2016, the EIA (U.S. Energy Information Administration) published the This Week in Petroleum report. It reported that US crude oil imports rose by 490,000 bpd (barrels per day) to 8.3 MMbpd (million barrels per day) for the week ending February 26, 2016. The rise in US crude oil imports led to the massive surge in the US crude oil inventory despite the high storage capacity utilization rate. Read Part 2 in this series to learn more about the US crude oil inventory.
US crude oil imports last year
The current US crude oil imports are 11% more than the level of 7.4 MMbpd in 2015. US crude oil imports rose due to low oil prices and the high crack spread. Lower crude prices also led to strategic ties between Middle Eastern oil producers to enter into long-term contracts with large independent US oil refiners such as Valero Energy (VLO) and Phillips 66 (PSX). These oil producers entered into the contracts to maintain their market share. They achieved this by discounting the crude oil prices below the global benchmark prices.
The recent uptick in crude oil prices benefits oil producers like Hess (HES), Continental Resources (CLR), Halcon Resources (HK), and Pioneer Natural Resources (PXD). However, higher oil prices increase the input cost to refiners like Western Refining (WNR), Alon USA Partners (ALDW), and Northern Tier Energy (NTI).
The volatility in the oil and gas market impacts ETFs and ETNs such as the iShares Global Energy (IXC), the United States Oil Fund (USO), the Vanguard Energy ETF (VDE), and the VelocityShares 3x Long Crude Oil ETN (UWTI).
In the next part of this series, we’ll look at US crude oil refinery demand.
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