The U.S. Energy Department's inventory release showed that crude stockpiles recorded a higher-than-expected weekly draw to the lowest level since 2015 on strong refining demand.
But the positive effect from the hefty crude inventory draw was partly offset by another build in gasoline and distillate supplies. On a further bearish note, domestic oil production revisited its rising trend that continues to be the biggest headwind for the market.
As a result, the front month West Texas Intermediate (WTI) crude futures edged up 0.3-6% (or 38 cents) to end at $62.01 per barrel yesterday – the highest settlement since December 2014.
Energy Stocks on a Roll
With the federal data showing the seventh consecutive week of U.S. stockpiles decline, energy stocks have been in a strong uptrend lately.
The two energy representatives in the 30-stock Dow Jones industrial average, ExxonMobil XOM and Chevron CVX added 3.9% and 6%, respectively, in the past month. Meanwhile, some of the biggest gainers of the S&P 500 during the period were oil and oil-related stocks like Marathon Oil Corp. MRO, Halliburton HAL, Diamond Offshore Drilling, Inc. DO, and Anadarko Petroleum Corporation APC.
Analysis of the EIA Data
Crude Oil: The federal government’s EIA report revealed that crude inventories fell by 7.4 million barrels for the week ending Dec 29, following a decrease of 4.6 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 5.7 million barrels.
An uptick in refinery demand led to the larger-than-expected stockpile draw with the world's biggest oil consumer even as U.S. output edged up 28,000 barrels per day last week to 9.8 million barrels per day – just 9,000 barrels per day short of last month’s record levels.
Oil stockpiles have shrunk in 31 of the last 39 weeks and are down almost 109 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 424.5 million barrels, current crude supplies are 11.4% below the year-ago period and the lowest since 2015 though they are in the middle 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 2.4 million barrels to 49 million barrels.
The crude supply cover was down from 25.2 days in the previous week to 24.6 days. In the year-ago period, the supply cover was 28.9 days.
Gasoline: Supplies of gasoline were up for the eighth straight week on weak demand. The 4.8 million barrels addition – more than double the polled number of 2 million barrels rise in supply level – took gasoline stockpiles up to 233.2 million barrels. Despite last week’s increase, the stock of the most widely used petroleum product remains 1% below the year-earlier level and is also above the upper limit of the average range.
Distillate: Distillate fuel supplies (including diesel and heating oil) soared 8.9 million barrels last week, dwarfing analysts’ expectations for 1.3 million barrels increase in supply level. The massive weekly rise could be attributed to higher output and tepid demand. But at 138.8 million barrels, current supplies are still 14.2% below the year-ago level and are in the middle of the average range for this time of the year.
Refinery Rates: Refinery utilization was up by 1% from the prior week to 96.7% – the highest since 2005. The operators kept processing large volumes of crude into products to circumvent year-end tax payments on stocks.
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, Occidental Petroleum Corp. OXY 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.
Based in Houston, TX, Occidental is an integrated oil and gas company, with significant exploration and production exposure. The 2017 Zacks Consensus Estimate for this company is 78 cents, representing some 177.6% earnings per share growth over 2016. Next year’s average forecast is $1.64, pointing to another 109.3% growth.
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