WTI Rises on Supply Numbers, but Shrugs Off Crude Inventory Build
US gasoline inventories
The EIA (U.S. Energy Information Administration) reported that US gasoline inventories increased by 0.4 MMbbls (million barrels) to 214.5 MMbbls in the week ending September 4. Analysts had expected inventories to decline by 150,000 barrels.
What this means
When gasoline inventories rise unexpectedly, it’s usually bearish for gasoline prices. Lower prices bring in lower revenue for refiners like Tesoro (TSO) and Phillips 66 (PSX) as well as refining MLPs like Northern Tier Energy (NTI). Together, Tesoro and Phillips 66 account for ~4% of the Vanguard Energy ETF (VDE). However, it’s important to note that these refiners’ profit margins are also determined by the price of crude oil. Their profit margins aren’t just determined by the price of refined products.
Lower gasoline prices may also be negative for MLPs like Tesoro Logistics (TLLP) and Phillips 66 Partners (PSXP). These companies transport refined products. Refiners may choose to decrease their gasoline production volumes due to lower prices. These MLPs make money based on the volume of refined products they transport.
Usually, if the actual increase in gasoline stocks is more than what analysts expected, it implies that demand was less than anticipated or that supplies were more than anticipated. This is bearish for gasoline prices. However, if the increase is less than what analysts expected, it implies that the demand was more than anticipated or that supplies were less than anticipated. This is bullish for gasoline prices.
Follow our weekly recap of gasoline prices on Market Realist’s Energy and Power page. Read Why Did Gasoline Prices Fall in the Week Ended September 4? for the latest weekly recap.
Why are gasoline inventories important?
Gasoline is an important fuel that’s mainly used for transportation. Inventory numbers, as we’ve discussed above, drive gasoline prices. Gasoline demand also drives crude oil demand and crude oil prices. So, energy investors watch gasoline inventories closely. In the next part of this series, we’ll take a look at recent gasoline demand and supply trends.
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