The U.S. Energy Department's inventory release showed that crude stockpiles declined for the sixth straight week, continuing to drag down the overall surplus. Moreover, domestic oil production fell for the first time in 3 months. On a further positive note, the report revealed that refined product inventories – gasoline and distillate – both decreased from their previous week levels.
While these data sets might be considered as bullish ahead of next week’s crucial OPEC meeting, many traders pointed out that the crude drawdown was smaller-than-expected and the commodity’s overall supply still remain much more than what the market can absorb.
As it is, oil prices have been on a downward spiral over the past month, erasing most of the gains associated with the OPEC-led output cut. The continued rise in domestic production thanks to soaring shale output have dragged down the commodity below the psychologically-critical $50 threshold.
Analysis of the EIA Data
Crude Oil: The federal government’s EIA report revealed that crude inventories fell by 1.75 million barrels for the week ending May 12, 2017, following a decline of 5.25 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 2.2 million barrels. An uptick in refinery demand and a dip in domestic oil output (for the first time in 13 weeks) led to the stockpile draw with the world's biggest oil consumer though the withdrawal failed to match up with expectations.
While the sixth straight inventory reduction will further help narrow the year-over-year storage surplus, the U.S. still remains awash with excess oil. At 520.77 million barrels, current crude supplies are up 2% from the year-ago period and are in the upper limit of the average range during this time of the year.
Worryingly, stocks at the Cushing terminal in Oklahoma – the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange – inched up 35,000 barrels from previous week’s level to 66.31 million barrels.
The crude supply cover was down from 30.7 days in the previous week to 30.5 days. In the year-ago period, the supply cover was 33.6 days.
Gasoline: Supplies of gasoline were down for the second week in a row on lower production and imports. The 413,000 million barrels draw – below polled number of 500,000 barrels decrease in supply level – took gasoline stockpiles down to 240.67 million barrels. Despite last week’s decline, the existing stock of the most widely used petroleum product is 1% higher than the year-earlier level but is over the upper half of the average range.
Distillate: Distillate fuel supplies (including diesel and heating oil) went down by 1.94 million barrels last week, well ahead of the analysts’ expectations for a 1.3 million-barrels fall. Following the third successive reduction in distillate fuel stocks, at 146.82 million barrels, distillate supplies are 4% lower than the year-ago level but are within the upper half of the average range for this time of the year.
Refinery Rates: Refinery utilization was up by 1.9% from the prior week to 93.4%.
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 Corp. XOM, Chevron Corp. CVX and ConocoPhillips COP, and refiners such as Tesoro Corp. TSO, Phillips 66 PSX and HollyFrontier Corp. HFC. Each of these firms has a Zacks Rank #3 (Hold).
In case you are looking for energy names for your portfolio, one could opt for Canadian Natural Resources Ltd. CNQ. It has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Calgary, Alberta-based Canadian Natural Resources is engaged in the acquisition, development and exploitation of crude oil and natural gas properties. The 2017 Zacks Consensus Estimate for this company is $1.30, representing some 720% earnings per share growth over 2016. Next year’s average forecast is $2.51, pointing to another 93% growth.
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