Another Big Draw, Crude Stays Over $100 - Analyst Blog
The U.S. Energy Department's weekly inventory release showed
that crude stockpiles fell sharply for the second time in as many
weeks amid climbing refinery runs. The report further revealed
that within the 'refined products' category, gasoline stocks
fell, while distillate supplies were up from the week-ago level.
The bullish data from the U.S. government, together with the ongoing unrest in Egypt that could destabilize the resource-rich Middle East and further tighten the global supply picture, has kept the commodity above $100 a barrel since last week. However, indications of a slowdown from China - the world's second largest economy - may play spoilsport and pull back oil prices.
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.
Analysis of the Data
Crude Oil: The federal government's EIA report revealed that crude inventories fell by 9.87 million barrels for the week ending Jul 05, 2013, following a decrease of 10.35 million barrels in the previous week.
The analysts surveyed by Platts - the energy information arm of McGraw-Hill Financial Inc. ( MHFI ) - had expected crude stocks to go down some 3.8 million barrels. An uptick in refinery processing rates - to their highest level since 2007 - led to the massive stockpile drawdown with the world's biggest oil consumer even as imports and production 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 2.69 million barrels from the previous week's level to 46.97 million barrels. Stocks are currently 9.5% under the all-time high of 51.86 million barrels reached in Jan.
As a result of the second successive weekly inventory plunge, at 373.92 million barrels, current crude supplies have gone 1.1% below the year-earlier level, though it is still close to the upper limit of the average for this time of the year. The crude supply cover was down from 24.5 days in the previous week to 23.6 days. In the year-ago period, the supply cover was 24.1 days.
Gasoline: Supplies of gasoline were down for the second time in as many weeks, as domestic consumption strengthened. This was partially offset by a rise in imports and domestic production.
The 2.63 million barrels withdrawal - contrary to analysts' projections for a 1.2 million-barrels increase in supply level - took gasoline stockpiles down to 221.03 million barrels. Notwithstanding this reduction, the existing inventory level of the most widely used petroleum product is 6.4% higher than the year-earlier level and is well above the top half of the average range.
Distillate: Distillate fuel supplies (including diesel and heating oil) were up 3.04 million barrels last week, significantly outpacing analysts' expectations for a 1.4 million barrels build in inventory level. The increase in distillate fuel stocks - the second in 3 weeks - could be attributed to weaker demand and higher production, somewhat negated by the effects of lower imports.
At 123.81 million barrels, distillate supplies are 2.4% above the year-ago level but is close to the lower limit of the average range for this time of the year.
Refinery Rates: Refinery utilization edged up 0.2% from the prior week to 92.4%. The analysts were expecting the refinery run rate to increase 0.3% to 92.5%.
Stocks to Consider
With spot crude price pushing through $100 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. ( XOM ) and Chevron Corp. ( CVX ) - 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 products.
In particular, one can look at PetroQuest Energy Inc. ( PQ ) as a good buying opportunity. This domestic upstream energy operator - sporting a Zacks Rank #1 (Strong Buy) - has a solid secular growth story with potential to rise significantly from current level.
CHEVRON CORP (CVX): Free Stock Analysis Report
MCGRAW HILL FIN (MHFI): Free Stock Analysis Report
PETROQUEST ENGY (PQ): Free Stock Analysis Report
EXXON MOBIL CRP (XOM): Free Stock Analysis Report
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