The U.S. Energy Department's weekly inventory release showed
that crude stockpiles logged a larger-than-expected decline. The
report further revealed that within the 'refined products'
category, gasoline stocks plunged, while distillate supplies were
up from the week-ago level. Meanwhile, refiners unexpectedly
scaled up their utilization rates by 1.6%.
Despite the supportive crude data from the U.S. government and
the ongoing unrest in Egypt that could destabilize the
resource-rich Middle East and further tighten the global supply
picture, the commodity's price retreated back below $104 a
barrel. This was mainly on account of the minutes from the
Federal Reserve's July meeting that suggested that the U.S. may
taper its monetary stimulus later this year.
Traders have voiced concerns that Fed's shift away from the
bond buying policy may lead to dollar-denominated oil prices to
increase in local-currency terms in emerging markets, thus
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
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.
Analysis of the Data
The federal government's EIA report revealed that crude
inventories fell by 1.43 million barrels for the week ending Aug
16, 2013, following a decrease of 2.81 million barrels in the
The analysts surveyed by Platts - the energy information arm
McGraw-Hill Financial Inc.
) - had expected crude stocks to go down some 1 million barrels.
An uptick in refinery processing rates and lower domestic
production led to the stockpile drawdown with the world's biggest
oil consumer even as imports rose.
In particular, crude inventories at the Cushing terminal in
Oklahoma - the key delivery hub for U.S. crude futures traded on
the New York Mercantile Exchange - were down 1.09 million barrels
from the previous week's level to 37.43 million barrels. Stocks
are currently at their lowest since Mar last year and 27.8% under
the all-time high of 51.86 million barrels reached in Jan.
As a result of the seventh weekly inventory decline in 8
weeks, at 359.06 million barrels, current crude supplies are at
their lowest level since Aug. 31, last year. It is now down
slightly (by 0.4%) from the year-ago period, though it is still
close to the upper limit of the average for this time of the
year. The crude supply cover remained at 22.7 days - same as in
the previous week. In the year-ago period, the supply cover was
Supplies of gasoline were down for the second time in as many
weeks, as domestic consumption strengthened and imports dropped.
This was partially offset by rise in production.
The 4.03 million barrels withdrawal - comfortably outpacing
analysts' projections for a 1.5 million-barrels decrease in
supply level - took gasoline stockpiles down to 218.40 million
barrels. Notwithstanding this drawdown, the existing inventory
level of the most widely used petroleum product is 7.7% higher
than the year-earlier level and is in the top half of the average
Distillate fuel supplies (including diesel and heating oil) were
up 871,000 barrels last week, just short of analysts'
expectations for a 1 million barrels rise in inventory level. The
increase in distillate fuel stocks - the third in as many weeks -
could be attributed to higher imports and production.
At 129.35 million barrels, distillate supplies are 3.4% above
the year-ago level but is close to the lower limit of the average
range for this time of the year.
Refinery utilization edged up 1.6% from the prior week to 91.0%.
The analysts were expecting the refinery run rate to decrease
0.5% to 88.9%.
Stocks to Consider
Despite concerns, with spot crude price staying strong - at
around $104 a barrel - brokerage analysts are likely to upgrade
their forecasts on oil-weighted companies and related support
plays, leading to positive estimate revisions.
While all crude-focused stocks - including behemoths like
Exxon Mobil Corp.
) - stand to benefit from rising commodity prices, companies in
the exploration and production (E&P) sector are the best
placed, as they will be able to extract more value for their
In particular, one can look at
Matador Resources Co.
) - a small-cap, undervalued E&P player - as a good buying
opportunity. Dallas TX-based Matador Resources, sporting a Zacks
Rank #1 (Strong Buy), with current focus on the high-return Eagle
Ford shale formation in South Texas, is expected to witness
earnings growth of 287% in 2013.
Moreover, a price-to-book (P/B) ratio of just 2.5 suggests
that the stock is still undervalued. In fact, shares of Matador
Resources have risen from $12.78 to $17.29 since we recommended
Crude Prices Surge: 3 Stocks to Buy Now
on Jul 22.
CHEVRON CORP (CVX): Free Stock Analysis
MCGRAW HILL FIN (MHFI): Free Stock Analysis
MATADOR RESOURC (MTDR): Free Stock Analysis
EXXON MOBIL CRP (XOM): Free Stock Analysis
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