Crude Oil Fell below $40 and MLPs Fell 11% Last Week
US crude oil inventories
According to data released on December 2, US crude oil inventories rose 0.2% in the week ending November 27 compared to the previous week. At the same time, the refinery utilization rate in the US rose to 94.5% from 92% in the previous week. The refinery utilization rate is gross input divided by refineries’ operable refining capacities. US crude oil inventories have risen significantly since mid-2014.
US crude oil production
In the week ending November 27, US crude oil production rose 0.4% compared to the previous week. The above graph shows the weekly supply and demand for crude oil in the US over the last six weeks. US crude oil production rose significantly starting in 2012.
US crude oil imports
US crude oil imports rose 5.6% compared to the previous week. Imports rose 5.2% in the week ending November 20. With increased domestic production, imports had fallen over time to keep US crude oil supply relatively stable.
US refinery inputs
For the latest week, US crude oil refinery inputs were 16.8 MMbpd (million barrels per day). The inputs to US refineries were less than the total crude oil production and imports, which could contribute to a rise in crude oil inventories. The crude oil supply and demand dynamics drive crude oil prices.
Impact on MLPs
The demand for crude oil and refined products drives the volume and revenue for pipeline MLPs like Genesis Energy (GEL), NuStar Energy (NS), and Holly Energy Partners (HEP). HEP forms ~0.7% of the Multi-Asset Diversified Income ETF (MDIV). Nearly 17% of MDIV’s portfolio is invested in MLPs. Currently, the crude oil inventory levels in the US are near 80-year highs. The high inventory levels have increased the demand for crude oil storage assets.
MLPs that have a crude oil storage capacity should benefit from the increased demand for storage. MLPs with storage assets include Plains All American Pipeline (PAA) and Blueknight Energy Partners (BKEP).
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