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Oil Price Slips as EIA Reports Unexpected Inventory Build

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·4 min read
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U.S. oil prices slid on Wednesday, as rising inventories and a dramatic increase in COVID-19 cases in India outweighed stronger gasoline demand and a decline in distillate supplies. On the New York Mercantile Exchange, WTI crude futures lost $1.32 or 2.1%, to settle at $61.35 a barrel.

Below we review the EIA's Weekly Petroleum Status Report for the week ending Apr 16.

Analyzing the Latest EIA Report

Crude Oil: The federal government’s EIA report revealed that crude inventories rose by 594,000 barrels compared with expectations of a 4.4 million barrel decline. A drop in downstream demand primarily accounted for the surprise stockpile build with the world’s biggest oil consumer. This puts total domestic stocks at 493 million barrels — 4.9% less than the year-ago figure but 1% higher than the five-year average.

On a somewhat positive 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 down 1.3 million barrels to 45.4 million barrels.

Meanwhile, the crude supply cover was down from 33.1 days in the previous week to 33 days. In the year-ago period, the supply cover was 38.7 days.

Let’s turn to the products now.

Gasoline: Gasoline supplies increased for the third week in a row. The 85,000 barrels build is attributable to an increase in imports even as demand jumped to the highest since August. Analysts had forecast gasoline inventories to rise by 800,000 million barrels. At 235 million barrels, the current stock of the most widely used petroleum product is 10.7% less than the year-earlier level and 3% below the five-year average range.

Distillate: Distillate fuel supplies (including diesel and heating oil) fell for the second consecutive week. The decrease of 1.1 million barrels reflected lower production and imports. Meanwhile, the market looked for a supply drop of 1.3 million barrels. Current inventories — at 142.4 million barrels — are 4% higher than the year-ago level and 2% more than the five-year average.

Refinery Rates: Refinery utilization, at 85%, remained unchanged from the prior week.

Wrapping Up

Oil prices settled lower on Wednesday following an unexpected build in inventories after three weeks of decline. Crude was also dragged down by record-high COVID-19 cases in densely populated countries like India that heightened worries about energy demand.

The commodity, however, has 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 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 in the United States, 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 12.4% so far this year, outperforming the S&P 500 Index’s 10.9% appreciation. In fact, some of the major gainers of the S&P 500 this year include energy-related names like Marathon Oil MRO, Diamondback Energy FANG, Occidental Petroleum OXY, EOG Resources EOG, ONEOK OKE and ExxonMobil XOM.

Marathon is the top-performing energy stock with a gain of 56.52%, followed by Diamondback (55.50%), Occidental (41.25%), EOG (38.28%), ONEOK (35.90%) and ExxonMobil (35.86%). Meanwhile, the only energy representative in the 30-stock Dow Jones industrial average, Chevron CVX, carrying a Zacks Rank of #1 (Strong Buy) — is up 21.6%.

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

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