The U.S. Energy Department's weekly inventory release showed that crude stockpiles logged a surprise decline, now at their lowest level in eight months. The report further revealed that within the ‘refined products’ category, gasoline stocks fell, while distillate supplies were up from the week-ago level. Meanwhile, refiners continue to operate at utilization rates that are highest for this time of year since 2006. Meanwhile, refiners scaled up utilization rates.
The supportive crude data from the U.S. government nudged West Texas Intermediate (WTI) crude futures closer to $93 per barrel yesterday.
Analysis of the Data
Crude Oil: The federal government’s EIA report revealed that crude inventories fell by 4.27 million barrels for the week ending Sep 19, 2014, following an increase of 3.67 million barrels in the previous week.
The analysts surveyed by Platts – the energy information arm of McGraw-Hill Financial Inc. – had expected crude stocks to go up some 1 million barrel. A sharp pullback in imports and strength in refinery utilization rates led to the large stockpile drawdown with the world's biggest oil consumer even as domestic production continued to spike, now at their highest level since 1986.
However, crude inventories at the Cushing terminal in Oklahoma – the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange – were up 191,000 barrels from the previous week’s level to 20.19 million barrels. Nevertheless, stocks are currently 61% under the all-time high of 51.86 million barrels reached in Jan 2013.
Following the fifth inventory decrease in 6 weeks, at 358.0 million barrels, current crude supplies are essentially in-line with the year-ago period and is within the upper limit of the average for this time of the year. The crude supply cover was down from 22.1 days in the previous week to 21.9 days. In the year-ago period, the supply cover was 22.6 days.
Gasoline: Supplies of gasoline were down for the second week in a row, as domestic consumption strengthened and production fell. This was partially offset by sharply higher imports.
The 414,000 barrels withdrawal – compared to analysts’ projections for a 600,000 barrels decrease in supply level – took gasoline stockpiles down to 210.32 million barrels. Following this drawdown, the existing inventory level of the most widely used petroleum product is 2.7% lower than the year-earlier level and is at the middle of the average range.
Distillate: Distillate fuel supplies (including diesel and heating oil) were up 823,000 barrels last week, significantly higher than analysts’ expectations for a 160,000 barrels rise in inventory level. The increase in distillate fuel stocks – the fifth in as many weeks – could be attributed to tepid demand and strong imports, somewhat negated by lower production.
At 128.60 million barrels, distillate supplies are 1.8% below the year-ago level but is close to the lower limit of the average range for this time of the year.
Refinery Rates: Refinery utilization was up 0.4% from the prior week to 93.4%. The analysts were expecting the refinery run rate to decrease.
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.
The data from EIA generally acts as a catalyst for crude prices and affect producers, such as Exxon Mobil Corp. (XOM), Chevron Corp. (CVX) and ConocoPhillips (COP), and refiners, such as Valero Energy Corp. (VLO), Phillips 66 (PSX) and HollyFrontier Corp. (HFC). With an improvement/deterioration in the companies’ ability to generate positive earnings surprises, they can then move higher/lower from their current Zacks Rank.
As of now, all the above-mentioned companies retain a Zacks Rank #3 (Hold), implying that they are expected to perform in line with the broader U.S. equity market over the next one to three months.
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