Inventory and refineries
U.S. crude oil inventory and refinery inputs can help investors get a sense of whether refineries are going to import more crude oil or not. Generally, high inventory levels are negative for crude oil imports and crude tankers, while below-average inventory levels are often positive. But investors should read inventory data in conjunction to refining activity.
Higher inventory level
According to the EIA, U.S. commercial crude oil inventories increased 10 million barrels on April 4 to 394 million barrels on April 11. All else equal, this is a negative sign for crude tanker companies such as Tsakos Energy Navigation Ltd. (TNP), Frontline Ltd. (FRO), Teekay Tankers Ltd. (TNK), and Nordic American Tanker Ltd. (NAT) because higher crude inventory suggests there’s more than enough supply to meet refineries’ demand for crude oil.
However, inventories had built up in part because of scheduled refinery maintenances. In the early spring, crude oil demand is typically lower, as refineries undergo seasonal maintenance and prepare to blend summer-grade gasoline. And lately, we’ve seen increased activity as refiners finish their maintenance. Crude inputs rose from 15.34 million barrels a day for the week ending April 4 to 15.61 million barrels a day on April 11. If oil demand remains robust, then refiners will process more crude oil over the next few months, and crude oil inventory should fall. In this case, crude tankers should benefit from higher imports.
Booming domestic production
We might also attribute high crude oil inventories to an inflow of large domestic crude oil supply. Applications of technologies called “hydraulic fracking” have enabled oil companies to tap into U.S. oil reserves that were once considered uneconomical. However, most of these refineries are designed to process heavier grades of crude that require imports.