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Slight Rise in Distillate Inventories in Week Ending April 17

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Distillate inventories

In its Weekly Petroleum Status Report released on Wednesday, the EIA (Energy Information Administration) stated that distillate stocks increased by 0.4 MMbbls last week to ~129.3 million barrels (or MMbbl) in the week ending April 17. Analysts were expecting inventories to increase by 1.1 million barrels. Inventories remain in the lower part of the five-year range.

When inventories increase less than expected, it is bullish for distillate prices. This positively affects the margins of refiners such as Valero Energy (VLO), which makes up 1.1 % of the iShares S&P Global Energy ETF (IXC).

Bullish distillate prices can also be positive for refining MLPs such as Northern Tier Energy (NTI), Calumet Specialty Products Partners (CLMT), and CVR Refining LP (CVRR).

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Factors that affected inventory movement last week

Distillate production decreased to 4.77 MMbbl/d from 4.99 MMbbl/d in the previous week. The EIA reported distillate products supplied averaged over 3.9 MMbbl/d over the last four weeks. This is 0.2% lower than the same period last year.

Distillate demand slightly increased from ~3.8 MMbbl/d to ~3.85 MMbbl/d in the week ended April 17.

A decrease in distillate production and increase in demand would have caused inventories to decrease. However, net trade flows were the likely cause of the slight increase in inventories.

Distillate demand drives crude demand

Distillates, or fuels such as heating oil and diesel, are also an important group of fuels for transportation and heating purposes. Distillate demand also drives crude demand and crude prices. So, energy investors watch distillate inventories closely. Distillate inventories give a handy snapshot of distillate demand and supply trends.

In the next part of this series, we’ll take a look at last week’s movement in Cushing inventories.

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