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Why a 0.3% Rise in Crude Oil Inventories Impacted MLPs

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Mar. 21 2016, Published 10:41 a.m. ET

US crude oil inventories

According to data released on March 16, 2016, US crude oil inventories rose 0.3% in the week ending March 11, 2016. The US refinery utilization rate fell to 89.0% from 89.1% in the previous week.

The refinery utilization rate is the gross input divided by refineries’ operable refining capacities. US crude oil inventories have risen significantly since mid-2014.

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US crude oil production

US crude oil production remained flat in the week ending March 11. The graph above shows the weekly supply and demand for crude oil in the United States over the six-week period ending March 11.

US crude oil imports

US crude oil imports fell 4.4% in the week ending March 11. Imports rose 2.9% in the week ending March 4. With increased domestic production, imports fell over time to keep the US crude oil supply relatively stable.

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US refinery inputs

For the week ending March 11, US crude oil refinery inputs were 15.9 MMbpd (million barrels per day). The inputs to US refineries were less than the total crude oil production and imports. This difference might contribute to a rise in crude oil inventories. Crude oil supply and demand dynamics drive crude oil prices.

US crude oil exports

According to a study by the EIA (U.S. Energy Information Administration), if the projected crude oil production remains below 10.6 MMbpd over the next decade, lifting a ban on US crude oil exports might not make a significant difference in crude oil prices.

However, the study shows that if domestic production in 2025 ranges between 11.7 MMbpd and 13.6 MMbpd, lifting the ban might result in increased domestic production, higher crude oil exports, reduced product exports, and slightly lower gasoline prices in the United States.

On December 30, 2015, NuStar Energy (NS) and ConocoPhillips (COP) announced the loading of their first export cargoes of light crude oil since the export ban was lifted. NuStar Energy constitutes 4.4% of the Global X MLP ETF (MLPA).

Impact on MLPs

Lifting the ban on US crude oil exports could narrow the spread between WTI (West Texas Intermediate) and Brent crude oil prices. Narrowing of the WTI-Brent spread could benefit upstream MLPs such as Memorial Production Partners (MEMP), Linn Energy (LINE), and Vanguard Natural Resources (VNR). At the same time, the EIA expects refining companies’ margins to be lower as the WTI-Brent spread narrows. We’ll analyze this spread in the next part of this series.

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