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U.S. Crude Surges on EIA Data for Best Close of the Month

Nilanjan Choudhury
Oil prices jumped last week on rising geopolitical tensions and a government report that showed a surprise drop in crude inventories.

The U.S. Energy Department's inventory release showed that crude stockpiles fell unexpectedly as refinery throughput rose. The report further revealed that gasoline inventories rose from previous week, while distillate stocks recorded a fall.

The bullish impact from the surprise crude inventory draw was supported by other developments including strong Chinese data, mounting tensions between Iraq and Kurdistan near an oil-rich region, President Trump’s decision not to certify Iran’s compliance with the nuclear deal, and a falling U.S. rig count.

As a result, West Texas Intermediate (WTI) crude futures gained around 4.4% for the week to settle at $51.45 per barrel Friday – the highest since Sep 29.

Analysis of the EIA Data

Crude Oil: The federal government’s EIA report revealed that crude inventories fell by 2.7 million barrels for the week ending Oct 6, following a decrease of 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 400,000 barrels.

Improving refinery crude runs amid higher utilization rates, together with lower domestic production, led to the big stockpile draw with the world's biggest oil consumer.

The rapid decline of oil inventories in recent months has helped the U.S. crude market shift from year-over-year storage surplus to a deficit. At 462.2 million barrels, current crude supplies are 2.5% below the year-ago period. However, stocks are close to the upper half of the average range during this time of the year.

However, stocks at the Cushing terminal in Oklahoma – the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange – was up by 1.3 million barrels to 63.8 million barrels.

The crude supply cover was down from 30.3 days in the previous week to 29.1 days. In the year-ago period, the supply cover was 29.4 days.

Gasoline: Supplies of gasoline were up for the third week running following the end of the peak driving season. The 2.5 million barrels addition – contrary to the polled number of 1.4 million barrels fall in supply level – took gasoline stockpiles up to 221.4 million barrels. Despite increases over the past few weeks, the existing stock of the most widely used petroleum product remains 1.8% below the year-earlier level but is in the upper limit of the average range.

Distillate: Distillate fuel supplies (including diesel and heating oil) went down by 1.5 million barrels last week, compared with analysts’ expectations for 1.6 million barrels decrease in supply level. The weekly fall could be attributed to strengthening export demand and storm-induced outages. At 134 million barrels – the lowest since June 2015 – current supplies are 14.6% below the year-ago level and are in the bottom half of the average range for this time of the year.

Refinery Rates: Refinery utilization was up by 1.1% from the prior week to 89.2%. While refinery runs have rebounded from storm-induced nine-year lows, it’s still a far cry from the pre-Harvey rates of 96.6% -- the highest since 2005.

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 Corp. XOM, Chevron Corp. CVX and ConocoPhillips COP, and refiners such as Valero Energy Corp. VLO, Phillips 66 PSX and Marathon Petroleum Corp. MPC.

Want to Own an Energy Stock Now?

If you are looking for a near-term energy play, Jones Energy Inc. JONE may be a good 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.

Headquartered in Austin, TX, Jones Energy is oil and gas exploration and production company with primary focus on Anadarko and Arkoma Basins of Oklahoma and the Texas Panhandle. It has a 100% track of outperforming estimates over the last four quarters at an average rate of 97.8%.

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