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Oil Names Rally on EIA Inventory Report, Demand Optimism

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·4 min read
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U.S. oil prices finished at their highest levels in almost a month after a weekly report from the Energy Information Administration ("EIA") showed a third straight decline in crude inventories. Prices were also boosted by an overall stronger demand outlook from the major energy watchdogs.

On the New York Mercantile Exchange, WTI crude futures gained $2.97 or 4.9%, to settle at $63.15 a barrel — the highest since Mar 17.

Below we review the EIA's Weekly Petroleum Status Report for the week ending Apr 9.

Analyzing the Latest EIA Report

Crude Oil: The federal government’s EIA report revealed that crude inventories fell by 5.9 million barrels compared with expectations of a 2.9 million barrel decrease. A spike in refinery demand primarily accounted for the higher-than-expected stockpile draw with the world’s biggest oil consumer. This puts total domestic stocks at 492.4 million barrels — 2.2% less than the year-ago figure but 1% higher than the five-year average.

On a somewhat bearish note, the latest report showed that supplies at the Cushing terminal (the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange) were up 346,000 barrels to 46.7 million barrels.

Meanwhile, the crude supply cover was down from 34.5 days in the previous week to 33.1 days. In the year-ago period, the supply cover was 35.3 days.

Let’s turn to the products now.

Gasoline: Gasoline supplies increased for the fourth time in four weeks. The 309,000 barrels build is attributable to an increase in production even as demand jumped to the highest since August. Analysts had forecast gasoline inventories to fall by 200,000 million barrels. At 234.9 million barrels, the current stock of the most widely used petroleum product is 10.4% less than the year-earlier level and 2% below the five-year average range.

Distillate: Distillate fuel supplies (including diesel and heating oil) fell for the first time in five weeks. The decrease of 2.1 million barrels reflected ramped-up usage. Meanwhile, the market looked for a supply addition of 700,000 barrels. Current inventories — at 143.5 million barrels — are 11.2% higher than the year-ago level and 4 more than the five-year average.

Refinery Rates: Refinery utilization was up 1% from the prior week to 85%.

Wrapping Up

Oil prices surged on Wednesday following another bigger-than-expected decline in crude inventories. Also, the major energy consultative bodies — the EIA, OPEC and the Paris-based IEA —raised their oil demand growth estimates thereby boosting crude.

The commodity had spent much of the past few months trading higher on continued vaccine-related developments and their successful deployment around the world, offering hope of an earlier-than-expected pickup in the commodity’s demand. The OPEC+ cartel’s calibrated production policy has also driven up oil. In its recent meeting, member countries of the OPEC+ group — a coalition between OPEC countries under kingpin Saudi Arabia and non-members led by Russia — decided to gradually loosen the output cuts from May through July, reflecting their confidence in the fuel’s demand.

Easing coronavirus infections, signs of robust demand in the world’s second-largest oil consumer, China, and the passage of the $1.9 trillion stimulus bill are the other positives in the oil story.

The renewed confidence can be gauged from the fact that the Zacks Oil/Energy sector has gained 14.8% so far this year, outperforming the S&P 500 Index’s 10.9% appreciation.

Energy Stocks Soar

Yesterday’s EIA figures pushed the Energy Select Sector SPDR — an assortment of the largest U.S. energy companies — up 2.78% to be at the top of the S&P sector standings. In fact, some of the top gainers of the S&P 500 included energy-related names like Diamondback Energy FANG, NOV Inc. NOV, EOG Resources EOG, Occidental Petroleum OXY, Pioneer Natural Resources Company PXD and APA Corporation APA.

Diamondback — carrying a Zacks Rank of #1 (Strong Buy) — was the top-performing stock with a gain of 6.05%, followed by NOV (5.91%), EOG (5.28%), Occidental (5.19%), Pioneer Natural (5.09%) and APA (4.98%). Meanwhile, the only energy representative in the 30-stock Dow Jones industrial average, Chevron CVX was up 2%.

You can see the complete list of today’s Zacks #1 Rank stocks here.

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