The U.S. Energy Department's inventory release showed that crude stockpiles recorded a large weekly draw on healthy refinery utilization. The 4.3 million barrels dip pushed storage levels to their lowest since February 2015.
But the positive effect from the hefty crude supply draw was more than offset by surprise build in fuel (gasoline and distillate) inventories. On a further bearish note, domestic oil production continued to be at record levels. Growing concerns about demand growth amid escalating trade conflict between the world’s biggest oil consumers - the United States and China - also pressured the commodity futures.
As a result, the front month West Texas Intermediate (WTI) crude futures moved down 1.4% (or 95 cents) to end at $67.77 per barrel yesterday – the lowest settlement since Aug 21.
Analysis of the EIA Data
Crude Oil: The federal government’s EIA report revealed that crude inventories fell by 4.3 million barrels for the week ending Aug 31, following a decrease of 2.6 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 2.5 million barrels.
Oil inventories have generally trended lower in a year and a half. In fact, stockpiles have shrunk in 50 of the last 74 weeks and are down more than 130 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 401.5 million barrels, current crude supplies are 13% below the year-ago figure though stocks are at the five-year average.
Strong refiner demand 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 549,000 barrels to 24.8 million barrels.
The crude supply cover was down from 22.9 days in the previous week to 22.6 days. In the year-ago period, the supply cover was 27.5 days.
Gasoline: Gasoline supplies were up for the second time in three weeks on weaker demand. The 1.8 million barrels gain – defying the polled number of 1.5 million barrels fall in supply level – took gasoline stockpiles up to 234.6 million barrels. Following last week’s addition, the current stock of the most widely used petroleum product is now 3.5% above the year-earlier level and is 7% over the five-year range.
Distillate: Distillate fuel supplies (including diesel and heating oil) were up 3.1 million barrels last week. Meanwhile, analysts expected the supply level to be unchanged. The fifth weekly rise in six weeks could be attributed to lower demand and higher production. Despite the string of increases, at 133.1 million barrels, current supplies are 10% below the year-ago level and 6% lower than the five-year average.
Refinery Rates: Refinery utilization was up by 0.3% from the prior week to 96.6%.
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.
Want to Own an Energy Stock Now?
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 (Strong Buy) 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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