Crude Drawdown Tepid, Fuel Stocks Rise - Analyst Blog

The U.S. Energy Department's weekly inventory release showed that crude stockpiles logged a smaller-than-expected decline, thereby pulling down the commodity's price to under $105 a barrel. On a further bearish note, the report revealed that gasoline and distillate supplies were up from the week-ago levels.

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 1.32 million barrels for the week ending Aug 02, 2013, following an increase of 431,000 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 2.0 million barrels. A drop in the level of imports led to the stockpile drawdown with the world's biggest oil consumer even as crude demand waned.

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 2.25 million barrels from the previous week's level to 39.87 million barrels. Stocks are currently 23.1% under the all-time high of 51.86 million barrels reached in Jan.

As a result of the fifth weekly inventory decline in 6 weeks, at 363.30 million barrels, current crude supplies have gone 1.8% 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 remained at 22.7 days - same as in the previous week. In the year-ago period, the supply cover was 23.7 days.

Gasoline: Supplies of gasoline were up for the second time in as many weeks despite a rise in domestic consumption and fall in imports. The slight build in gasoline inventories could be attributed to a rise in domestic production.

The 135,000 barrels gain - contrary to analysts' projections for a 1 million-barrels decrease in supply level - took gasoline stockpiles up to 223.60 million barrels. Following this spike, the existing inventory level of the most widely used petroleum product is 8.5% higher than the year-earlier level and is above the top half of the average range.

Distillate: Distillate fuel supplies (including diesel and heating oil) were up 469,000 barrels last week, again defying analysts' expectations for a 1 million barrels fall in inventory level. The increase in distillate fuel stocks - the first in 3 weeks - could be attributed to weaker demand and higher production, somewhat negated by the effects of lower imports.

At 126.46 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 down 0.4% from the prior week to 90.9%. The analysts were expecting the refinery run rate to increase 0.2% to 91.5%.

Stocks to Consider

With spot crude price staying strong - at around $105 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 Range Resources Corp. ( RRC ) as a good buying opportunity. This domestic upstream energy operator with focus on high yield, liquid-rich fields and 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

RANGE RESOURCES (RRC): Free Stock Analysis Report

EXXON MOBIL CRP (XOM): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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