The EIA’s crude and refined product inventory data
On July 16, 2014, the U.S. Energy Information Administration (or EIA) released crude and refined product inventory data for the week ending July 11, 2014. It reported that crude oil inventories decreased by 7.53 million barrels. Analysts had expected only a 2.10 million barrel decrease. This was the second largest draw in crude inventories for 2014 so far.
This report could indicate that demand for crude from refiners was stronger than expected. Indeed, the EIA reported that U.S. refiners operated at 93.8% of capacity during that week, the highest in the years of economic recovery following the 2008 crisis.
Gasoline, a major product of refined crude, saw an increase in inventories of 171 thousand barrels, as opposed to an estimated decrease of 610 thousand barrels. This could either mean that Americans consumed less gas than expected or that refineries supplied more gasoline for the week than needed.
Inventories of distillates, also important products of refining used for transportation and industrial needs, increased by 2,528 thousand barrels, compared to a far lower estimated increase of 1,600 thousand barrels. This could mean that refiners churned out more distillates than needed by consumers for the week.
Meanwhile, crude oil inventories at Cushing, Oklahoma, decreased by 650 thousand barrels after rising in the previous week. This is a positive signal for West Texas Intermediate (or WTI) crude, which is priced based on demand and supply at Cushing.
The sharp draw in crude inventories, both across the country and at Cushing, which would indicate stronger than expected demand, prompted WTI prices to trade higher to $102.29 per barrel on July 16, compared to $99.96 per barrel on July 15.
However, other factors, such as the positive macroeconomic news from China, the rising tensions in the Middle East, and the fears of increasing friction between Russia and Ukraine, also supported the rise in crude prices.
Names with portfolios slanted towards oil such as Oasis Petroleum Inc. (OAS), Hess Corporation (HES), Chevron Corporation (CVX), and Exxon Mobil Corporation (XOM) may see margins inflating in a higher oil price environment. Also, oil price movements affect energy sector exchange-traded funds (or ETFs) such as the SPDR S&P Oil and Gas Exploration and Production ETF (XOP) and the iShares Dow Jones U.S. Energy Sector ETF (IYE).
We’ll discuss the change in inventory and natural gas prices in the next section of this series.