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U.S. Oil Prices Rise as EIA Confirms Another Inventory Draw

At 442 million barrels, current crude supplies are less than 1% below the year-ago figure and are 7% above the five-year average.

The U.S. Energy Department's inventory release showed that crude stockpiles recorded a second straight weekly draw. The decline – though lower than anticipated – helped to prop up the commodity, which was also supported by reports of Saudi Arabia preparing to cut shipments to refiners in the United States in an effort to tighten the market and boost prices. The front month West Texas Intermediate crude futures gained 2.8% (or $1.43) to $52.58 per barrel yesterday.

Analysis of the EIA Data

Crude Oil: The federal government’s EIA report revealed that crude inventories fell by 1.2 million barrels for the week ending Dec 7, following a decrease of 7.3 million barrels in the previous week. The analysts surveyed by The Wall Street Journal had expected crude stocks to go down some 2.8 million barrels.

A pullback in domestic production from record levels led to the stockpile draw with the world's biggest oil consumer. This was partly offset by higher imports and weaker demand, which restricted the decline well below expectations.

Despite decreasing for the second straight week, oil inventories have generally trended higher over the past few months. In fact, stockpiles rose for 10 straight weeks before the previous week’s decline and are up more than 40 million barrels since September. The steady rise is on the verge of shifting the U.S. crude market from year-over-year storage deficit to a surplus. At 442 million barrels, current crude supplies are less than 1% below the year-ago figure and are 7% above the five-year average.

Moreover, the latest report shows that stocks at the Cushing terminal in Oklahoma – the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange – rose 1.1 million barrels to 39.4 million barrels.

The crude supply cover was down from 25.9 days in the previous week to 25.5 days. In the year-ago period, the supply cover was 26.1 days.

Gasoline: Gasoline supplies tallied back-to-back weekly gains as production and imports went up. The 2.1 million barrels gain –above the polled number of 1.8 million barrels rise in supply level – took gasoline stockpiles up to 228.3 million barrels. Following last week’s build, the current stock of the most widely used petroleum product is about 1% above the year-earlier level and 3%over the five-year range.

Distillate: Distillate fuel supplies (including diesel and heating oil) were down 1.5 million barrels last week, while analysts were looking for an inventory addition of 1.3 million barrels. The first weekly draw in three weeks could be attributed to lower imports and strengthening demand. Current supplies – at 124.1 million barrels – are 3.1% lower than the year-ago level and 8% below than the five-year average.

Refinery Rates: Refinery utilization edged down fractionally (by 0.4%) from the prior week to 95.1%.

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?

Oil’s troubles have pushed the index into a bear market, leading to a more than 30% drop from recent highs. At this time, it might be prudent for investors to maintain caution — either withdraw for a while or look for fundamentally sound stocks.

If you are looking for a near-term energy play, Unit Corporation UNT might be a good selection. Unit has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The 2018 Zacks Consensus Estimate for Unit is $1.00, representing some 85.2% earnings per share growth over 2017. Next year’s average forecast is $1.62, pointing to another 65.3% growth.

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Valero Energy Corporation (VLO) : Free Stock Analysis Report
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