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Distillate Inventories Declined Last Week: Broke Month-Long Trend

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Jun. 3 2015, Updated 9:06 a.m. ET

Distillate inventories

The EIA (U.S. Energy Information Administration) released its Weekly Petroleum Status Report on Thursday. It said that distillate stocks increased by 1.1 MMbbls (million barrels) last week to 128.8 MMbbls in the week ending May 22. Analysts were expecting inventories to decrease by 400,000 barrels.

An increase in distillate inventories is bearish for distillate prices. This hurts refiners’ margins like Valero Energy (VLO). It accounts for ~2% of the iShares US Energy ETF (IYE). It’s also negative for refining MLPs (master limited partnerships) like Northern Tier Energy (NTI), Calumet Specialty Products Partners (CLMT), and CVR Refining (CVRR).

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Usually, if the actual decline is more than analysts expected, it implies that demand was more than anticipated or that supplies were less than anticipated. This is bullish for distillate and crude oil prices. However, if the decline is less than what analysts expected, it implies that demand was less than anticipated or that supplies were more than anticipated. This is bearish for distillate and crude oil prices.

As seen in the above chart, inventories remain in the middle part of the five-year range.

Distillate demand drives crude oil demand

Distillates are fuels like heating oil and diesel. Distillates are an important group of fuels. They’re used for purposes ranging from transportation to heating. Distillate demand also drives crude oil demand and crude oil prices. So, energy investors watch distillate inventories closely. We’ll discuss distillate demand and supply trends for last week in the next part of this series.

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