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Crude Prices Surge on Inventory, Fed - Analyst Blog
The U.S. Energy Department's weekly inventory release showed
that crude stockpiles logged a large decline. The report further
revealed that refined product inventories - gasoline and
distillate - both decreased from their previous week levels on
strengthening demand. Meanwhile, refiners continue to operate at
utilization rates that are highest for this time of year since
The supportive crude data from the U.S. government, together with the news that the Federal Reserve has decided to leave its monetary stimulus program intact, has again nudged the commodity above $108 a barrel even as Syrian tensions eased.
Traders had 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 slowing growth.
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.
Analysis of the Data
Crude Oil: The federal government's EIA report revealed that crude inventories fell by 4.37 million barrels for the week ending Sep 13, 2013, following a decrease of a marginal 219,000 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 1.5 million barrels. Continued strength in refinery processing rates and lower imports led to the lar ge stock pile drawdown with the world's biggest oil consumer even as domestic production continued to spike, now at their highest level since 1989.
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 861,000 barrels from the previous week's level to 33.26 million barrels. Stocks are currently at their lowest since Feb last year and 35.9% under the all-time high of 51.86 million barrels reached in Jan.
Following the tenth inventory decrease in 12 weeks, at 355.63 million barrels, current crude supplies are down 3.3% from the year-ago period but are close to the upper limit of the average for this time of the year. The crude supply cover was down from 22.7 days in the previous week to 22.3 days. In the year-ago period, the supply cover was 24.8 days.
Gasoline: Supplies of gasoline were down for the fifth time in 6 weeks, as domestic consumption strengthened. This was partially offset by higher imports and production.
The 1.63 million barrels withdrawal - compared to analysts' projections for an unchanged supply level - took gasoline stockpiles down to 216.02 million barrels. Notwithstanding this drawdown, the existing inventory level of the most widely used petroleum product is 10.0% higher than the year-earlier level and is in the top half of the average range.
Distillate: Distillate fuel supplies (including diesel and heating oil) were down 1.08 million barrels last week, as against analysts' expectations for a 1 million barrels rise in inventory level. The decrease in distillate fuel stocks - the first in 3 weeks - could be attributed to robust demand and lower imports, somewhat negated by higher production.
At 131.09 million barrels, distillate supplies are 2.3% 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, at 92.5%, remained unchanged from the prior week.
Stocks to Consider
With spot crude price staying strong - at around $108 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 Matador Resources Co. ( MTDR ) - 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 an astounding 431% in 2013.
CHEVRON CORP (CVX): Free Stock Analysis Report
MCGRAW HILL FIN (MHFI): Free Stock Analysis Report
MATADOR RESOURC (MTDR): Free Stock Analysis Report
EXXON MOBIL CRP (XOM): Free Stock Analysis Report
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