US Crude Oil Inventories Rise 0.9%: The Impact on Energy MLPs
Key Energy MLP Indicators: October 2 Week’s Must-Know Update
US crude oil inventories
According to data released on September 30, US crude oil inventories rose 0.9% in the week ended September 25 compared to the previous week. At the same time, the refinery utilization rate in the United States fell to 89.8% for the week, from 90.9% the previous week. The refinery utilization rate is calculated as gross inputs to refineries divided by refineries’ operable refining capacities.
US crude oil imports
The above graph shows the weekly demand and supply for crude oil in the United States. US crude oil production in the week ended September 25 fell 0.4% compared to the previous week. US crude oil imports rose 5.3% compared to the previous week. Imports had fallen 0.2% in the week ended September 18.
In its September STEO (Short-Term Energy Outlook). the EIA (U.S. Energy Information Administration) forecast that US crude oil production will average 9.2 million bpd (barrels per day) in 2015 and 8.8 million bpd in 2016. This is lower than the EIA’s August outlook. A lower price outlook is expected to affect oil-directed rig counts, drilling, and well completion projects in 2015 and 2016.
US refinery inputs
As the above graph shows, US crude oil refinery inputs for the latest week were 16.0 MMbpd (million barrels per day). Inputs to US refineries were less than the total crude oil production and imports. This may contribute to a rise in crude oil inventories. Crude oil supply and demand dynamics drive crude oil prices.
Crude oil exports
The US government is evaluating the implications of removing restrictions on US crude oil exports. This will have significant implications for the US energy sector. Broadly, while upstream MLPs may gain from such a move, margins of refining MLPs may shrink.
Lower prices for crude oil, which is an input to refining MLPs such as Alon USA Partners (ALDW), have benefited MLPs in 2015. Read more about this effect in our series High-return refining MLPs: The 4 investors should watch.
Impact on MLPs
The demand for crude oil and refined products drives volumes and revenue for pipeline MLPs like Genesis Energy (GEL). Crude oil inventory levels in the United States are currently near 80-year highs. High inventory levels have increased the demand for crude oil storage assets.
MLPs with crude oil storage capacity are set to benefit from this increased demand for storage. MLPs with storage assets include Plains All American Pipeline (PAA) and Blueknight Energy Partners (BKEP). PAA forms ~6% of the Global X MLP ETF (MLPA).
Browse this series on Market Realist:
