The U.S. Energy Department's weekly inventory release showed that crude stockpiles recorded a fall of 2.2 million barrels, the first increase in three weeks, and significantly larger than expected. On a further bullish note, the report revealed that refined product inventories, gasoline and distillate, both dropped from their week earlier levels. Importantly, the positive data sets have added to the strong sentiment in the oil market.
As a result, the front month West Texas Intermediate (WTI) crude futures gained 3% (or $2.08) to $71.14 per barrel yesterday – the highest settlement since November 2014.
Over the past month, the commodity has been supported by speculation that the United States could renew sanctions on OPEC-member Iran. True to predictions, U.S. President Donald Trump recently withdrew from a nuclear deal with the cartel’s third-largest producer and pledged to reimpose sanctions on Tehran. The action has stoked worries about an expected cut in Iranian oil exports by around 1 million barrels per day from current levels and lead to a supply shortage in an already ‘tight’ oil market.
Energy Stocks on a Roll
The bullish oil market sentiment encouraged buying in energy stocks, which lifted the Energy Select Sector SPDR – an assortment of the largest U.S. energy companies – more than 2% Wednesday.
The two energy representatives in the 30-stock Dow Jones industrial average, Exxon Mobil XOM and Chevron CVX added 2.4% and 1.7%, respectively. Meanwhile, some of the biggest gainers of the S&P 500 were oil and oil-related stocks like Diamond Offshore Drilling, Inc. DO, Occidental Petroleum Corporation OXY, Marathon Oil Corporation MRO and National Oilwell Varco, Inc. NOV.
Analysis of the EIA Data
Crude Oil: The federal government’s EIA report revealed that crude inventories fell by 2.2 million barrels for the week ending May 4, following an increase of 6.2 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.
A sharp drop in net crude imports to its lowest since March led to the larger-than-expected draw with the world's biggest oil consumer even as domestic production reached a new record.
In particular, U.S. output rose by 84,000 barrels per day last week to more than 10.7 million barrels per day – the most since the EIA started maintaining weekly data in 1983. In early February, oil production broke through the 10 million barrels a day threshold for the first time in nearly 50 years and has maintained the record levels thereafter.
Meanwhile, stockpiles have shrunk in 39 of the last 57 weeks and are down nearly 90 million barrels in the past year. The gradual fall has helped the U.S. crude market shift from year-over-year storage surplus to a deficit. At 433.8 million barrels, current crude supplies are 17% below the year-ago period and are in the bottom 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 1.4 million barrels to 37.2 million barrels.
At 26.0 days, the crude supply cover was unchanged from the previous week. In the year-ago period, the supply cover was 30.7 days.
Gasoline: Gasoline supplies recorded their first decrease in three weeks as imports and production dropped, while demand strengthened. The 2.2 million barrels decline – outpacing the polled number of 600,000 barrels fall in supply level – took gasoline stockpiles down to 235.8 million barrels. Following last week’s draw, the stock of the most widely used petroleum product is now 2.2% below the year-earlier level and it is in the bottom half of the average range.
Distillate: Distillate fuel supplies (including diesel and heating oil) were down 3.8 million barrels last week, twice analysts’ expectations for 1.9 million barrels decrease in supply level. The weekly fall could be attributed to slightly lower production. At 115 million barrels, current supplies are 23% below the year-ago level and are in the lower half of the average range for this time of the year.
Refinery Rates: Refinery utilization was down by 0.7% from the prior week to 90.4%.
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.
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National Oilwell Varco, Inc. (NOV): Free Stock Analysis Report
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