U.S. Crude Supplies Down 1st Time In 10 Weeks

The U.S. Energy Department's weekly inventory release showed that crude stockpiles recorded a surprise fall from their all-time high levels. On a further bullish note, the report revealed that refined product inventories – gasoline and distillate – both dropped from their previous week levels.

However, supplies at the Cushing, OK storage hub jumped, while domestic output reached its highest level in thirteen months. Worryingly, the rising U.S. oil production starting to undermine the OPEC members’ surprisingly high level of compliance with the landmark production cut agreement signed late last year.

As a result, West Texas Intermediate (WTI) crude futures edged down 0.2% (or 11 cents) to $48.75 per barrel Thursday.

Oils-Energy Sector 5YR % Return

Oils-Energy Sector 5YR % Return

Analysis of the EIA Data

Crude Oil: The federal government’s EIA report revealed that crude inventories fell by 237,000 barrels for the week ending Mar 10, 2017, following a jump of 8.21 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 up some 3.5 million barrels. A sharp decline in imports led to the surprise stockpile draw with the world's biggest oil consumer even as domestic production increased marginally.

While the first inventory reduction in 10 weeks will help narrow the year-over-year storage surplus, the U.S. still remains awash with excess oil. At 528.16 million barrels, current crude supplies are up 7% from the year-ago period and are above the upper limit 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 2.13 million barrels from previous week’s level to 66.53 million barrels.

The crude supply cover was down from slightly - from 34.2 days in the previous week to 34.1 days. In the year-ago period, the supply cover was 33.0 days.

Gasoline: Supplies of gasoline fell for the fourth straight week on lower production. The 3.01 million barrels draw – dwarfing analysts’ polled number of 1.9 million barrels decrease in supply level – took gasoline stockpiles down to 246.28 million barrels. Following last week’s decline, the existing stock of the most widely used petroleum product is now 1.4% lower than the year-earlier level and is in the upper half of the average range.

Distillate: Distillate fuel supplies (including diesel and heating oil) went down by 4.23 million barrels last week, again significantly trumping analysts’ expectations for a 1.8 million-barrels fall. The reduction in distillate fuel stocks could be attributed to lower imports and strength in demand. At 157.30 million barrels, distillate supplies are 2.5% lower than the year-ago level and are close to the upper half of the average range for this time of the year.

Refinery Rates: Refinery utilization was down by 0.8% from the prior week to 85.1%.

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 Corp. XOM, Chevron Corp. CVX and ConocoPhillips COP, and refiners such as Tesoro Corp. TSO, Phillips 66 PSX and HollyFrontier Corp. HFC. Each of these firms has a Zacks Rank #3 (Hold).

In case you are looking for energy names for your portfolio, one could opt for Pioneer Natural Resources Co. PXD. It has a Zacks Rank #1 (Strong Buy). Shares of Pioneer Natural resources surged over 28% over the past 1 year, significantly outpacing the 0.5% gain for the Zacks categorized Oil and Gas - Exploration and Production – U.S. industry. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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