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US Gasoline Inventories Could Spill Outside the 5-Year Range

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US gasoline inventories

The EIA (US Energy Information Administration) reported that US gasoline inventories increased by 3.3 MMbbls (million barrels) to 222 MMbbls in the week ending September 25. Analysts surveyed by Bloomberg had expected inventories to decrease by 500,000 barrels.

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What this means

When gasoline inventories rise more than expected, it’s usually bearish for gasoline prices. The graph above shows that gasoline inventories have been rising consistently since August and are on the verge of breaking the five-year average upper end.

Lower prices bring in lower revenues for refiners such as Tesoro (TSO) and Valero Energy (VLO), as well as refining MLPs such as Northern Tier Energy (NTI). Together, Tesoro and Valero account for ~3.5% of the Vanguard Energy ETF (VDE). However, it’s important to note that these refiners’ profit margins are also determined by crude oil prices (USO).

Usually, if a rise in gasoline inventory was more than what analysts expected, it implies that demand was less than anticipated or that supply was more than anticipated. This is bearish for gasoline prices. However, if the increase was less than what analysts expected, it implies that demand was more than anticipated or that supply was less than anticipated. This is bullish for gasoline prices.

You can follow our weekly recap of gasoline prices on Market Realist’s Energy and Power page. The latest report is available at Why Did US Gasoline Prices Rise Last Week?

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Lower gasoline prices may also be negative for MLPs such as Tesoro Logistics (TLLP) and Valero Energy Partners (VLP). These companies transport refined products. Refiners may choose to decrease their gasoline production volumes due to lower prices. These MLPs make money based on the volume of refined products they transport.

Why are gasoline inventories important?

Gasoline is an important fuel that’s mainly used for transportation. Inventory numbers, as we’ve discussed above, drive gasoline prices. Gasoline demand also drives crude oil demand and crude oil prices, so energy investors watch gasoline inventories closely.

In the next part of this series, we’ll take a look at recent gasoline supply and demand trends.

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