Why Did the Crude Oil Market Rise despite Bearish Fundamentals?
Distillate inventory
The EIA (U.S. Energy Information Administration) reported that distillate stocks rose by 2.9 MMbbls (million barrels) to 163.6 MMbbls for the week ending February 26, 2016. In contrast, the US distillate inventory fell by 0.26 MMbbls for the week ending February 19, 2016. The distillate inventory rose due to the rise in the distillate production. Read the next part of the series to learn more about the distillate production. To learn more about the latest update on gasoline stocks, read Part 3 of this series.
Distillate stocks by region
The distillate inventory in the US is influenced by the US Gulf Coast, Midwest, and East Coast regions. Distillate stocks rose marginally to 60.2 MMbbls from 59.9 MMbbls in the East Coast region for the week ending February 26, 2016. Likewise, distillate stocks rose to 49.8 MMbbls from 48.6 MMbbls in the Gulf Coast region for the same period. Distillate stocks rose in the Midwest and West Coast regions, respectively, for the same period.
Impact
Market surveys projected that distillate stocks could fall by 1.2 MMbbls for the week ending February 19, 2016. In contrast, the unexpected rise in distillate stocks could weigh on crude oil prices. Distillates are the refined form of crude oil. The current distillate stocks are 30% more than the levels in 2015. The rise in crude oil and refined product stocks benefits oil storage and transportation companies like DCP Midstream Partners (DPM), Williams Companies (WMB), Spectra Energy (SE), Energy Transfer Partners (ETP), and Kinder Morgan (KMI). It also benefits oil tankers like Frontline (FRO), Nordic American Tankers (NAT), DHT Holdings (DHT), and Tsakos Energy Navigation (TNP).
ETFs such as the ProShares UltraShort Bloomberg Crude Oil ETF (SCO), the First Trust Energy AlphaDEX Fund (FXN), and the Direxion Daily Energy Bull 3x Shares ETF (ERX) are influenced by the rise and fall in crude oil prices.
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