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Oil Price Gains 4.2% in a Day: What's Behind the Rally?

Nilanjan Choudhury

U.S. crude futures jumped $2.33, or 4.2%, to settle at $58.43 a barrel on Wednesday after a data report showed a much bigger-than-expected drawdown in oil inventories, ending several consecutive weeks of builds.

While traders are speculating about the potential outcome of the OPEC meeting, we review the EIA's Weekly Petroleum Status Report for the week ending Nov 29.

Crude Oil: The federal government’s EIA report revealed that crude inventories fell by 4.9 million barrels, compared to the 700,000 barrels decrease that energy analysts had expected. Heavy refining activity and lower imports were responsible for the large stockpile draw with the world's biggest oil consumer. This puts the total domestic stocks at 447.1 million barrels – 0.9% above the year-ago figure and 3% higher than the five-year average.

The oil market drew more support from stockpile draw at the Cushing terminal in Oklahoma. The key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange saw inventories fall 302,000 barrels to 43.8 million barrels.

The crude supply cover was down from 28.1 days in the previous week to 27.3 days. In the year-ago period, the supply cover was 25.9 days.

Turning to products, and it is a fairly bearish story.

Gasoline: Gasoline supplies increased for the fourth straight week. The fuel’s 3.4 million barrels jump is attributable to subdued demand. Analysts had forecast 2.7 million barrels climb. At 229.4 million barrels, the current stock of the most widely used petroleum product is 1.4% above the year-earlier level and exceeds the five-year average range by 4%.

Distillate: Distillate fuel supplies (including diesel and heating oil) were up for the second time in 11 weeks. The 3.1 million barrels increase was significantly higher than the supply climb of 460,000 barrels that analysts were looking for. Current supplies – at 119.5 million barrels – are 4.9% lower than the year-ago level and remain 11% below the five-year average.

Refinery Rates: Refinery utilization was up 2.6% from the prior week to 91.9%.

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 and Marathon Petroleum MPC.

Want to Own an Energy Stock Now?

In case you are looking for a near-term energy play, HollyFrontier Corporation HFC might be a good selection. One of the largest independent refiners and marketers of petroleum products in the United States, the company has a Zacks Rank #2 (Buy).

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

The Dallas, TX-based company has seen the Zacks Consensus Estimate for 2019 rise 1.6% over the past 30 days.

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