Why Distillate Inventories Increased Last Week
June 24: Higher Demand, Lower Imports Pull Crude Oil Stocks Lower
Distillate production
Distillate production decreased slightly in the week to June 19, to 4.97 million barrels per day (or MMbpd) from 5.01 MMbpd in the week before. The EIA (U.S. Energy Information Administration) reported that distillate products supplied averaged 5.02 MMbpd over the last four weeks. This is ~2% higher than the 4.92 MMbpd over the same period last year. Compared to the prior week ending June 12, the four-week average increased ~0.4%.
Distillate demand
Distillate demand decreased significantly from ~4.11 MMbpd in the June 12 week to ~3.61 MMbpd in the week ended June 19. The EIA reported that distillate demand averaged 3.84 MMbpd over the last four weeks. This is 0.8% lower than 3.87 MMbpd over the same period last year. Compared to the prior week ending June 12, the four-week average decreased by ~2.2%.
What does this infer?
As you can see above, distillate production (4.97 MMbpd) exceeds demand (3.61 MMbpd) by a large margin. Also, the decrease in production was smaller than the decrease in demand last week. So a large build should have followed. You should note that trade flows also affect distillate stocks.
Distillate consumption forecasts
According to the EIA’s STEO (Short-Term Energy Outlook) released on June 9, distillate consumption will increase by 90,000 barrels per day (or bbl/d), or 2.3%, in 2015 compared to 2014 levels, and a further 50,000 bbl/d, or 1.2%, in 2016. This growth will be driven by a rise in manufacturing demand and foreign trade.
Increased distillate consumption is bullish for distillate prices, which is positive for refiners such as Marathon Petroleum (MPC) and Tesoro Corporation (TSO). These two companies make up ~2.3% of the iShares U.S. Energy ETF (IYE). They’re also positive for MLPs such as MPLX LP (MPLX) and Tesoro Logistics LP (TLLP), which carry refined products. It’s also positive for refining MLPs such as Northern Tier Energy (NTI), Calumet Specialty Products Partners (CLMT), and CVR Refining (CVRR).
For the latest updates on the energy sector, be sure to read Market Realist’s Energy and Power page.
Browse this series on Market Realist:
