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Gasoline Inventories Offer Some Support to Crude Oil Prices

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Gasoline inventories

The EIA (U.S. Energy Information Administration) reported that gasoline inventories decreased by 0.3 MMbbls (million barrels) to ~220.3 MMbbls in the week ending May 29. Analysts expected inventories to increase by 500,000 barrels or 0.5 MMbbls.

The above graph shows that weekly gasoline inventories are almost touching the five-year range.

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What this means

When gasoline inventories decline, it’s bullish for gasoline prices. This is positive for refiners’ margins like Phillips 66 (PSX) and Valero Energy (VLO). They account for ~4.4 % of the iShares US Energy ETF (IYE). It’s also positive for crude oil prices and MLPs (master limited partnerships)—like Tesoro Logistics (TLLP)—that carry refined products. Tesoro Logistics accounts for 2.4% of the Alerian MLP ETF (AMLP).

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

Background

Gasoline is an important fuel. It’s mainly used for transportation. Gasoline demand also drives crude oil demand and crude oil prices. So, energy investors watch gasoline inventories closely. We’ll discuss gasoline demand and supply trends for last week in the following parts of this series.

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