Crude Inventories Fall Sharply, Price Rises Slightly

The U.S. Energy Information Administration (EIA) released its weekly petroleum status report this morning. U.S. commercial crude inventories fell by 6.5 million barrels last week, bringing the total U.S. commercial crude inventory to 373.6 million barrels, above the upper limit of the five-year range for this time of the year.

The consensus estimate called for a weekly inventory decrease of 800,000 barrels. Crude prices, which had been rising already today, rose further on the substantial inventory drop.

Total gasoline inventories fell by 2.2 million barrels last week and are now in the lower half of the five-year average range. Over the past four weeks, gasoline supplied has declined by 3.4% compared to the same period last year. Total motor gasoline supplied averaged 8.8 million barrels a day for the four weeks.

For the past week, crude imports averaged 8.4 million barrels a day, down by 1.2 million barrels a day from the previous week. Refineries were running at 92.2% of capacity, with daily input of 15.6 million barrels a day, down by 225,000 barrels a day from the previous week.

Distillate inventories, which include diesel fuel, fell by 1 million barrels last week and are now below the lower limit average. Distillate product supplied totaled 3.5 million barrels a day last week, down 2.4% when compared with the same period last year. Distillate production fell to 4.6 million barrels a day last week.

Today’s report is mixed news for refiners like Valero Energy Corp. (NYSE: VLO), Marathon Petroleum Corp. (NYSE: MPC), Tesoro Corp. (NYSE: TSO), HollyFrontier Corp. (NYSE: HFC) and Western Refining Inc. (NYSE: WNR). On one hand, run rates remain high and inventories of refined products are falling, which should translate into better pricing and therefore better margins. On the other hand, crude prices have been trending higher, putting some pressure on margins.

WTI crude rose by about $0.30 a barrel after the EIA report was published, to $88.89. Bringing crude inventories into line with demand for refined products is a dicey proposition given the almost daily swings in sentiment on the global economy.

Paul Ausick