US Distillate Inventories Fall for First Time in Four Months
WTI Ignores Bullish Inventory, Focuses on Bearish Gasoline Data
US distillate inventories
The EIA (US Energy Information Administration) released its weekly Petroleum Status Report on Wednesday, September 23. The report said that US distillate inventories decreased by 2.1 MMbbls (million barrels) to 151.9 MMbbls in the week ending September 18. Analysts’ expectations had called for a rise of 950,000 barrels. This was the first time inventories had fallen since May 15.
What this means
An unexpected fall in distillate inventories is bullish for distillate prices. Higher prices may cause refiners such as Tesoro (TSO) and Phillips 66 (PSX) as well as refining MLPs such as Northern Tier Energy (NTI) to produce more distillates.
Together, Tesoro and Phillips 66 account for ~6.4% of the Energy Select Sector SPDR ETF (XLE). Higher distillate prices mean higher revenue for these refiners. However, for refiners to see profits, crude oil prices (USO) will need to remain steady or fall.
A rise in production volumes for distillates is positive for MLPs such as Tesoro Logistics (TLLP) and Phillips 66 Partners (PSXP), as they transport refined products. These MLPs stand to make more money by transporting higher volumes.
Last week, inventories saw an unexpected drop. This implies that demand was more than anticipated or that supply was less than anticipated. This is bullish for distillate prices.
By contrast, if inventories drop less than analysts’ expectations, it implies that the demand was less than anticipated or that the supply was more than anticipated. This is bearish for distillate prices.
You can follow our weekly recap of diesel prices at Market Realist’s Energy and Power page.
Background
Distillates are an important group of fuels used for purposes ranging from transportation to heating. Distillate inventories, as discussed above, can drive distillate prices. Distillate demand also drives crude oil demand and crude oil prices, so energy investors must watch distillate inventories closely.
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