Why WTI Prices Ignored Crude Oil and Gasoline Inventory Builds
(Continued from Prior Part)
Gasoline inventories
In its Weekly Petroleum Status Report released on January 27, 2016, the EIA (U.S. Energy Information Administration) stated that US gasoline inventories rose by ~3.5 MMbbls (million barrels) to settle at 248.5 MMbbls for the week ended January 22, 2016. The current gasoline stocks were 4.3% more than in the corresponding period last year.
Gasoline production
US gasoline production fell by 0.13 MMbpd to settle at 9.1 MMbpd for the week ended January 22, 2016. The present gasoline production levels are just 0.5% higher than gasoline production in the same period last year.
For the week ended January 22, US gasoline imports slightly rose by 0.02 MMbpd to settle at 0.53 MMbpd. The current gasoline imports were 16.3%, or 0.10 MMbpd, lower compared to the same period last year.
What does this mean?
Gasoline production fell in the last week even though gasoline inventories rose by 3.5 MMbbls, which means gasoline demand fell last week. Because of high crack spreads, refinery production levels have been quite stable in the past few months even though there is no support from demand levels. Thus, gasoline inventories have grown at a rapid pace that is currently well above the upper limit of the five-year average range.
The rising gasoline inventories added pressure on gasoline prices as well as crude oil prices. As gasoline demand drives the demand for the crude oil, any changes in the gasoline inventory will also affect crude oil prices. Gasoline inventory levels are also one of the reasons that crude oil prices have tested their 12-year lows. Thus, the rise in gasoline inventories also put pressure on crude oil producers such as Exxon Mobil (XOM), Chevron (CVX), Murphy Oil (MUR), and Devon Energy (DVN).
The rise in gasoline inventories will lower gasoline prices. When prices decrease, the refinery margins also decrease. This will impact the profitability of the refineries such as Marathon Petroleum (MPC), Valero Energy (VLO), Western Refining (WNR), and Holly Frontier (HFC).
Valero Energy makes up 2.4% of the iShares US Energy ETF (IYE) and 4.0% of the Energy Select SPDR ETF (XLE).
Continue to Next Part
Browse this series on Market Realist: