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Oil Finds Higher Ground After U.S. Crude Inventories Fall

Nilanjan Choudhury
U.S. crude oil stockiles fell sharply last week as exports rose to an average of 1.78 million barrels per day, the Energy Information Administration said on Wednesday.

The U.S. Energy Department's inventory release showed that crude stockpiles recorded a large weekly draw on the back of rising exports. On a further encouraging note, the report revealed that refined product inventories, gasoline and distillate, both fell from their week earlier levels against the backdrop of robust demand.

As a result, the front month West Texas Intermediate (WTI) crude futures moved up 1.4% (or 98 cents) to end at $69.51 per barrel yesterday – the highest settlement in August.

Analysis of the EIA Data

Crude Oil: The federal government’s EIA report revealed that crude inventories fell by 2.6 million barrels for the week ending Aug 24, following a decrease of 5.8 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 1 million barrels.

Oil inventories have generally trended lower in a year and a half. In fact, stockpiles have shrunk in 49 of the last 73 weeks and are down more than 127 million barrels since April 2017. The gradual fall has helped the U.S. crude market shift from year-over-year storage surplus to a deficit. At 405.8 million barrels, current crude supplies are 11% below the year-ago figure though stocks are at the five-year average.

Higher exports led to the larger-than-expected stockpile draw with the world's biggest oil consumer even as domestic production stayed strong at 11 million barrels per day – the most since the EIA started maintaining weekly data in 1983.

In particular, output in the United States have climbed sharply on increased production from shale formations to remain over the 10 million barrels a day threshold since early February.

However, on a slightly bearish note, stocks at the Cushing terminal in Oklahoma – the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange – edged up 58,000 barrels to 24.3 million barrels.

The crude supply cover was down from 23 days in the previous week to 22.9 days. In the year-ago period, the supply cover was 26 days.

Gasoline: Gasoline supplies were down for the second time in three weeks as demand surged to highest on record. The 1.6 million barrels draw – significantly above the polled number of 160,000 barrels fall in supply level – took gasoline stockpiles down to 232.8 million barrels. Despite last week’s decline, the current stock of the most widely used petroleum product is still 1.3% above the year-earlier level and is 5% over the five-year range.

Distillate: Distillate fuel supplies (including diesel and heating oil) were down 837,000 barrels last week. Meanwhile, analysts expected the supply level to increase by 1.7 million barrels. The first weekly fall in more than a month could be attributed to an uptick in demand and lower production. At 130 million barrels, current supplies are 13% below the year-ago level and 8% lower than the five-year average.

Refinery Rates: Refinery utilization was down by 1.8% from the prior week to 96.3%.

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.

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If you are looking for a near-term energy play, Helix Energy Solutions Group, Inc. HLX may be an excellent selection. This company has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Helix Energy Solutions provides deepwater oilfield services in the Gulf of Mexico. In the last 60 days, three earnings estimates moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings has risen 19% in the same period.

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