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Bull Market: Crude oil prices and inventories move in same direction

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Part 2
Bull Market: Crude oil prices and inventories move in same direction PART 2 OF 4

Crude Oil Prices Benefit from Falling Gasoline Stocks

EIA inventory report

The EIA (U.S. Energy Information Administration) released its weekly crude oil, gasoline, and distillates inventories report on Wednesday, September 2, 2015. The EIA report showed that crude oil inventory rose by 4.7 MMbbls (million barrels) to 455.4 MMbbls for the week ending August 28, 2015. In contrast, crude oil stocks fell by 5.5 MMbbls to 450.8 MMbbls for the week ending August 21, 2015. The API (American Petroleum Institute) data showed that the crude oil stockpile rose by 7.6 MMbbls for the week ending August 28, 2015.

Crude Oil Prices Benefit from Falling Gasoline Stocks

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Inventory estimates

The market estimates from API data and the Wall Street Journal projected an increase in US commercial crude oil stocks. The increasing crude oil inventory implies that supplies are increasing or that demand is slowing. Supplies might have increased from increasing crude oil imports, and the demand might have dropped from crude oil refineries.

US crude oil imports increased by 656,000 barrels per day to 7.9 MMbpd (or million barrels per day) for the week ending August 28, 2015. The monthly crude oil imports were at 7.7 MMbpd, 0.2% more than 2014 levels during the same period of the year.

The crude oil input to refineries fell by 269,000 barrels per day to 16.4 MMbpd for the week ending August 28, 2015 compared to the previous week. The refinery utilization rate was at 92.8% of operable capacity during the same period. The fall in refinery utilization was due to the summer driving season nearing an end and the beginning of seasonal refinery maintenance.

The EIA report added that distillate stocks rose by 0.1 MMbbls for the week ending August 28. In contrast, gasoline stocks fell by 0.3 MMbbls over the same period. Currently, the crude oil inventory is 26% greater than the levels of 359.57 MMbbls in 2014. It’s also near the period-high levels for stocks during this time of the year. The record US inventory and global inventory should continue to pressure crude oil prices.

However, crude oil prices have surged more than 20% since the August 26, 2015, low of $38.61 per barrel. The recent surge in crude oil prices benefits upstream players like Chevron (CVX), ConocoPhillips (COP), and Marathon Oil (MRO). They account for 18.30% of the Energy Select Sector SPDR ETF (XLE). These stocks’ crude oil production mix is more than 49% of their total production. They also benefit ETFs like XLE and the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).

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