Why a Big Supply Drawdown Couldn't Lead to Oil Price Gains
U.S. oil prices dropped on Thursday, with global trade worries arising out of vessel attacks in the Red Sea — believed to be launched by Yemen's Houthi rebels — being put on the back burner for now. With major supply disruptions looking unlikely, sentiment around the commodity turned negative. However, losses were capped by a weekly report from the Energy Information Administration ("EIA") that showed draws in crude and gasoline stockpiles.
On the New York Mercantile Exchange, WTI crude futures lost $2.34, or 3.2%, to close at $71.77 a barrel yesterday.
We believe that oil’s current levels of just over $70 allow long-term-oriented market participants to buy shares in quality companies at attractive prices. Investors interested in the sector could benefit from having quality stocks like Murphy USA MUSA, Imperial Oil Limited IMO and Sunoco LP SUN in their portfolio.
Let's dig deep into EIA’s Weekly Petroleum Status Report for the week ending Dec 22.
Analyzing the Latest EIA Report
Crude Oil: The federal government’s EIA report revealed that crude inventories fell 7.1 million barrels compared to analyst expectations of a 2.6 million-barrel decrease. The significantly higher-than-expected stockpile draw with the world’s biggest oil consumer was largely thanks to a combination of stronger refiner demand and lower imports, which more than offset continued high domestic production, which at 13.3 million barrels per day, is at all-time highs.
Total domestic stock now stands at 436.6 million barrels — 4.2% higher than the year-ago figure of 419 million barrels but 1% less than the five-year average.
However, on a slightly bearish 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) gained 1.5 million barrels to 34 million barrels — the highest since August.
Meanwhile, the crude supply cover decreased from 27.4 days in the previous week to 26.7 days. In the year-ago period, the supply cover was 25.8 days.
Let’s turn to the products now.
Gasoline: Gasoline supplies decreased for the first time in six weeks. The 669,000-barrel decline was primarily attributable to a pickup in demand. Analysts had forecast that gasoline inventories would gain 150,000 barrels. At 226.1 million barrels, the current stock of the most widely used petroleum product is 1.4% more than the year-earlier level, while it is 2% below the five-year average range.
Distillate: Distillate fuel supplies (including diesel and heating oil) rose for the fifth time in as many weeks. The 741,000-barrel increase mainly reflected higher production that more than offset the rise in consumption. Meanwhile, the market looked for a supply build of 650,000 barrels. Following last week’s addition, current inventories — at 115.8 million barrels — are 3.7% below the year-ago level and 9% lower than the five-year average.
Refinery Rates: Refinery utilization, at 93.3%, rose 0.9% from the prior week.
3 Energy Stocks to Buy
Having gone through the Weekly Petroleum Status Report, investors interested in the energy space might consider the operators mentioned below. Each of these companies currently carries a Zacks Rank #1 (Strong Buy).
You can see the complete list of today’s Zacks #1 Rank stocks here.
Murphy USA: Murphy USA beat the Zacks Consensus Estimate for earnings in two of the trailing four quarters and missed in the other two. It has a trailing four-quarter earnings surprise of 7%, on average.
Murphy USA is valued at around $7.6 billion. The company has seen its shares gain 26.6% in a year.
Imperial Oil Limited: IMO beat the Zacks Consensus Estimate for earnings in three of the last four quarters and met in the other. Imperial Oil has a trailing four-quarter earnings surprise of 9.4%, on average.
IMO is valued at around $30.8 billion. Imperial Oil has seen its shares gain 6% in a year.
Sunoco LP: The 2023 Zacks Consensus Estimate for SUN indicates 10.9% year-over-year earnings per unit growth.
Sunoco is valued at around $6.2 billion. SUN has seen its units rise 45% in a year.
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