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Energy Stocks Rally as U.S. Crude & Fuel Inventories Drop

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·4 min read
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The U.S. Energy Department's weekly inventory release showed that crude stockpiles recorded a drawdown. Another seemingly positive development was that supplies at the Cushing, OK storage hub fell, too. On a further bullish note, the report revealed that refined product inventories — gasoline and distillate — declined from their previous week levels.

The upbeat sentiment on the back of a decline in stocks across the board buoyed WTI crude futures, which gained $1.10, or 2.34%, to settle at $48.12 a barrel.

Below we review the EIA's Weekly Petroleum Status Report for the week ending Dec 18.

Analyzing the Latest EIA Report

Crude Oil: The federal government’s EIA report revealed that crude inventories fell by 562,000 barrels compared to expectations of a 4.7-million-barrel decrease. A jump in exports primarily accounted for the small stockpile draw with the world’s biggest oil consumer even as the magnitude was capped by lower refiner runs. This puts total domestic stocks at 499.5 million barrels — 13.2% more than the year-ago figure and 11% higher 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) edged down 26,000 barrels to 58.4 million barrels.

The crude supply cover increased marginally, from 35.2 days in the previous week to 35.3 days. In the year-ago period, the supply cover was 26.4 days.

Let’s turn to the products now.

Gasoline: Gasoline supplies decreased for the first time in six weeks. The 1.1-million-barrel draw is attributable to an uptick in consumption, which rose by 47,000 barrels per day during the week under review. Analysts had forecast gasoline inventories to rise by 1.4 million barrels. At 237.8 million barrels, the current stock of the most widely used petroleum product is just around 0.6% lower than the year-earlier level but remains 4% above the five-year average range.

Distillate: Distillate fuel supplies (including diesel and heating oil) fell last week after rising for three weeks in a row. The 2.3-million-barrel decline reflected incremental demand. Meanwhile, the market looked for a supply decrease of 1.1 million barrels. Current inventories — at 148.9 million barrels — are 19.2% higher than the year-ago level and 10% higher than the five-year average.

Refinery Rates: Refinery utilization was down 1.1% from the prior week to 78%.

Wrap Up

Oil has been rallying for the past few months on continued vaccine-related developments that offer hope for an earlier-than-expected pickup in the commodity’s demand. But the fuel appeared to reverse course earlier this week on apprehensions that travel bans and renewed restrictions to mitigate a fast-spreading coronavirus strain — detected in the U.K. — will again stymie crude usage and jeopardize the nascent recovery.

However, oil shot back up yesterday after U.S. government data revealed a weekly drop in domestic crude inventories, along with declines in both gasoline and distillate stockpiles. The bullish data sets pushed the Energy Select Sector SPDR — an assortment of the largest U.S. energy companies — up more than 2.2% on Wednesday to be at the top of the S&P sector standings. In fact, some of the major gainers of the S&P 500 included energy-related names like Diamondback Energy FANG, Marathon Oil MRO, Occidental Petroleum OXY, TechnipFMC FTI and Devon Energy DVN. Diamondback Energy was the top-performing stock with a gain of 8.5%, followed by Marathon Oil (7.9%), Occidental Petroleum (5.7%), TechnipFMC (5.7%) and Devon Energy (5.6%). Meanwhile, the only energy representative in the 30-stock Dow Jones industrial average, Chevron CVX — carrying a Zacks Rank of #3 (Hold) — rose 1.6%.

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