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EIA Confirms Third Straight Week of Oil Inventory Drawdown

Nilanjan Choudhury

The U.S. Energy Department's inventory release showed that crude stockpiles recorded a third straight weekly draw. The decline – though lower than anticipated – helped to prop up the commodity, which touched a nearly 16-month low earlier in the week on concerns about oversupply. The front month West Texas Intermediate crude futures gained 2.1% (or 96 cents) to $47.20 per barrel yesterday.

Analysis of the EIA Data

Crude Oil: The federal government’s EIA report revealed that crude inventories fell by a marginal 497,000 barrels for the week ending Dec 14, following a decrease of 1.2 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 3 million barrels.

Higher exports led to the stockpile draw with the world's biggest oil consumer. This was mostly offset by an uptick in imports and slightly weaker demand, which restricted the decline well below expectations.

Despite decreasing for the third straight week, oil inventories have generally trended higher over the past few months. In fact, stockpiles rose for 10 straight weeks before the current series of declines and are up around 40 million barrels since September. As a result, the U.S. crude market has shifted from year-over-year storage deficit to a surplus. At 441.5 million barrels, current crude supplies are 1.1% above the year-ago figure and 7% over the five-year average.

Moreover, the latest report shows that stocks at the Cushing terminal in Oklahoma – the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange – rose 1.1 million barrels to 40.5 million barrels.

The crude supply cover was down from 25.5 days in the previous week to 25.3 days. In the year-ago period, the supply cover was 25.6 days.

Gasoline: Gasoline supplies tallied a third straight week of gains as imports went up. The 1.8 million barrels gain – below the polled number of 2.6 million barrels rise in supply level – took gasoline stockpiles up to 230.1 million barrels. Following last week’s build, the current stock of the most widely used petroleum product is about 1% above the year-earlier level and 3% over the five-year range.

Distillate: Distillate fuel supplies (including diesel and heating oil) were down 4.2 million barrels last week, while analysts were looking for an inventory drawdown of just 900,000 barrels. The second weekly draw in a row could be attributed to lower production and strengthening demand. Current supplies – at 119.9 million barrels – are 6.9% lower than the year-ago level and 11% below than the five-year average.

Refinery Rates: Refinery utilization edged up fractionally (by 0.3%) from the prior week to 95.4%.

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 ExxonMobil XOM, Chevron CVX and ConocoPhillips COP, and refiners such as Valero Energy VLO, Phillips 66 PSX and Marathon Petroleum MPC.

Want to Own an Energy Stock Now?

Oil’s troubles have pushed the index into a bear market, leading to a more than 35% drop from recent highs. At this time, it might be prudent for investors to maintain caution — either withdraw for a while or look for fundamentally sound stocks.

If you are looking for a near-term energy play, Unit Corporation UNT might be a good selection. Unit has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The 2018 Zacks Consensus Estimate for Unit is 96 cents, representing some 77.8% earnings per share growth over 2017. Next year’s average forecast is $1.62, pointing to another 68.5% growth.

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Valero Energy Corporation (VLO) : Free Stock Analysis Report
 
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