Crude Slumps Despite Bullish EIA Data, Geopolitical Premium
U.S. oil prices suffered the worst day of the year on Wednesday, Mar 10, after it zoomed to $130 earlier this week for the first time since 2008. On the New York Mercantile Exchange, WTI crude futures tumbled $15, or more than 12%, to settle at $108.70 a barrel. That marked the biggest one-day point drop since November 2021. The rout came following positive signs, which ensured that oil production from alternate sources will make up for the potential loss of Russian output.
Interestingly, yesterday’s crude price woes overshadowed a weekly report from the Energy Information Administration ("EIA") showing draws in oil and fuel stockpiles.
Let's dig deep into the EIA's Weekly Petroleum Status Report for the week ending Mar 4.
Analyzing the Latest EIA Report
Crude Oil: The federal government’s EIA report revealed that crude inventories fell 1.9 million barrels compared to expectations of a 700,000-barrel decrease per the analysts surveyed by S&P Global Platts. Continued strength in refinery demand accounted for the larger-than-expected stockpile draw with the world’s biggest oil consumer even as exports fell and U.S. production remained robust. Total domestic stocks now stand at 411.6 million barrels — 17.4% less than the year-ago figure and 13% lower than the five-year average.
The latest report also showed that supplies at the Cushing terminal (the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange) decreased 585,000 barrels to 22.2 million barrels.
Meanwhile, the crude supply cover was down from 27.1 days in the previous week to 27 days. In the year-ago period, the supply cover was 40.5 days.
Let’s turn to the products now.
Gasoline: Gasoline supplies decreased for the fifth week in succession. The 1.4-million-barrel drop was attributable to higher demand. Analysts had forecast that gasoline inventories would fall by 2.2 million barrels. At 244.6 million barrels, the current stock of the most widely used petroleum product is 5.6% more than the year-earlier level and 1% above the five-year average range.
Distillate: Distillate fuel supplies (including diesel and heating oil) fell for the eighth week in succession. The 5.2 million-barrel decrease primarily reflected demand strength. Current inventories — at 113.9 million barrels — are 17.2% below the year-ago level and 18% lower than the five-year average.
Refinery Rates: Refinery utilization, at 89.3%, rose 1.6% from the prior week.
Final Words
Despite yesterday’s punishing losses, the Oil/Energy market continues to enjoy support from geopolitical uncertainty amid Russia’s military operations in Ukraine. The oil price surge to multi-year highs reflects concerns about supplies from Russia, which is one of the world's largest producers of the commodity. The Biden administration’s ban on the import of Russian crude and energy products has contributed to oil’s price increase.
Even the fundamentals point to a tightening of the market. Per the latest government report, U.S. commercial stockpiles have been down more than 18% in a year, prompted by the demand spike owing to the reopening of economies and a rebound in activity. Taking Cushing as an indicator, the oil market has already tightened considerably.
As a matter of fact, the Energy Select Sector SPDR — an assortment of the largest U.S. companies thronging the space — has risen 20.9% year to date against an 11.2% loss for the broader S&P 500 benchmark.
Consequently, the top three gainers of the S&P 500 this year are all energy-related names: Occidental Petroleum OXY, Halliburton HAL and APA Corporation APA.
Occidental Petroleum: This Zacks Rank #1 (Strong Buy) stock has jumped 98.3% year to date. Occidental Petroleum’s expected EPS growth rate for three to five years is currently 37.9%, which compares favorably with the industry's growth rate of 22.5%.
You can see the complete list of today’s Zacks #1 Rank stocks here.
OXY has a projected earnings growth rate of 74.1% for this year. The Zacks Consensus Estimate for Occidental Petroleum’s 2022 earnings has been revised 44.2% upward over the past 60 days.
Halliburton: Halliburton, carrying a Zacks Rank of #3 (Hold), is the second best-performing S&P 500 energy stock in 2022 with a gain of 52.3%. The company beat the Zacks Consensus Estimate for earnings in three of the trailing four quarters, the average being 9%.
Halliburton is valued at around $33 billion. The Zacks Consensus Estimate for HAL’s 2022 earnings has been revised 5.9% upward over the past 60 days.
APA Corporation: This Zacks Rank #3 stock is another top performer in the S&P 500 Index, with shares appreciating 43.9% so far in 2022. APA has a projected earnings growth rate of 56.4% for this year.
The Zacks Consensus Estimate for APA’s 2022 earnings have been revised 12.1% upward over the past 60 days. APA beat the Zacks Consensus Estimate for earnings in three of the trailing four quarters, the average being 13.4%.
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