The U.S. Energy Department's inventory release showed that crude stockpiles recorded a higher-than-expected weekly draw.
But the positive effect from the hefty crude inventory draw was more than offset by a massive build in gasoline supplies. On a further bearish note, domestic oil production maintained its steadily rising trend that continues to be the biggest headwind for the market.
As a result, the front month West Texas Intermediate (WTI) crude futures lost 2.9% (or $1.66) to end at $55.96 per barrel yesterday – the lowest settlement since Nov 16, while gasoline fell to its lowest in about seven weeks.
Energy Stocks Slump
The federal data sparked widespread selling in energy stocks, which pushed the Energy Select Sector SPDR – an assortment of the largest U.S. energy companies – down almost 1.3% Wednesday.
The two energy representatives in the 30-stock Dow Jones industrial average, ExxonMobil XOM and Chevron CVX were down 0.7%. Meanwhile, some of the biggest casualties of the S&P 500 were oil and oil-related stocks like Newfield Exploration Co. NFX, Range Resources Corp. RRC and Southwestern Energy Co. SWN.
Analysis of the EIA Data
Crude Oil: The federal government’s EIA report revealed that crude inventories fell by 5.6 million barrels for the week ending Dec 1, following a decrease of 3.4 million barrels in the previous week. The analysts surveyed by S&P Global Platts – the leading independent commodities and energy data provider – had expected crude stocks to go down some 4.1 million barrels.
An uptick in refinery demand and lower imports led to the larger-than-expected stockpile draw with the world's biggest oil consumer even as U.S. output rose by 25,000 barrels per day last week to 9.7 million barrels per day – the most since the EIA started maintaining weekly data in 1983.
Oil stockpiles have shrunk in 27 of the last 35 weeks and are down more than 85 million barrels since April. The gradual fall has helped the U.S. crude market shift from year-over-year storage surplus to a deficit. At 448.1 million barrels, current crude supplies are 7.8% below the year-ago period though they are in the upper half of the average range during this time of the year.
Meanwhile, stocks at the Cushing terminal in Oklahoma – the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange – was down by 2.8 million barrels to 55.6 million barrels.
The crude supply cover was down from 27.2 days in the previous week to 26.5 days. In the year-ago period, the supply cover was 29.8 days.
Gasoline: Supplies of gasoline were up for the fourth straight week as demand remained weak. The large, 6.8 million barrels addition – more than double the polled number of 2.7 million barrels rise in supply level – took gasoline stockpiles up to 220.9 million barrels. Despite last week’s increase, the existing stock of the most widely used petroleum product remains 3.7% below the year-earlier level but is in the middle of the average range.
Distillate: Distillate fuel supplies (including diesel and heating oil) was up 1.7 million barrels last week, greater than analysts’ expectations for 1.5 million barrels increase in supply level. The weekly rise could be attributed to healthy production and lower demand. At 129.4 million barrels, current supplies are 17.4% below the year-ago level and are in the lower half of the average range for this time of the year.
Refinery Rates: Refinery utilization was up by 1.2% from the prior week to 93.8%.
About the Weekly Petroleum Status Report
The Energy Information Administration (EIA) Petroleum Status Report, containing data of the previous week ending Friday, outlines information regarding the weekly change in petroleum inventories held and produced by the U.S., both locally and abroad.
The report provides an overview of the level of reserves and their movements, thereby helping investors understand the demand/supply dynamics of petroleum products. It is an indicator of current oil prices and volatility that affect the businesses of the companies engaged in the oil and refining industry.
Want to Own an Energy Stock Now?
If you are looking for a near-term energy play, ConocoPhillips COP may be a good selection. This company has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
ConocoPhillips is a major global exploration and production company with operations and activities in 21 countries. The 2017 Zacks Consensus Estimate for this company is 54 cents, representing some 120.4% earnings per share growth over 2016. Next year’s average forecast is $1.68, pointing to another 209.9% growth.
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