Oil Climbs After Another Weekly Fall in U.S. Crude Stocks

The U.S. Energy Department's weekly inventory release showed that crude stockpiles registered a fall of 1.4 million barrels as exports jumped to a new record. 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 0.3% (or 18 cents) to $71.49 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 a cut in Iranian oil exports by around 1 million barrels per day from the current levels and a supply shortage in an already tight oil market.

Energy Stocks on a Roll

The bullish oil market sentiment has encouraged buying in energy stocks, which lifted the Energy Select Sector SPDR - an assortment of the largest U.S. energy companies - more than 7% over the past month.

The two energy representatives in the 30-stock Dow Jones industrial average, Exxon Mobil XOM and Chevron CVX added 4.7% and 6.7%, respectively. Meanwhile, some of the biggest gainers of the S&P 500 were oil and oil-related stocks like Devon Energy Corporation DVN , Hess Corporation HES , 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 1.4 million barrels for the week ending May 11, following a decrease of 2.2 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 2.3 million barrels.

Soaring exports in the wake of widening Brent premium to WTI led to the draw with the world's biggest oil consumer. This was partly offset by record high domestic production, which restricted the decline below expectations.

In particular, U.S. output rose by 20,000 barrels per day last week to more than 10.72 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 40 of the last 58 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 432.4 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 - edged up by 53,000 barrels to 37.2 million barrels.

The crude supply cover was up from 26.0 days in the previous week to 26.1 days. In the year-ago period, the supply cover was 30.5 days.

Gasoline: Gasoline supplies were down a second week in a row as imports dropped, while demand remained strong with the onset of the summer driving season. The 3.8 million barrels decline - outpacing the polled number of 2 million barrels fall in supply level - took gasoline stockpiles down to 232 million barrels. Following last week's draw, the stock of the most widely used petroleum product is now 3.6% below the year-earlier level though it is in the top half of the average range.

Distillate: Distillate fuel supplies (including diesel and heating oil) inched down 92,000 barrels last week, unable to match up with analysts' expectations for 1.3 million barrels decrease in supply level. The weekly fall could be attributed to lower imports and strong demand. At 114.9 million barrels, current supplies are 21.7% 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 up 0.7% from the prior week to 91.1%.

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

Chevron Corporation (CVX): Free Stock Analysis Report

Exxon Mobil Corporation (XOM): Free Stock Analysis Report

Devon Energy Corporation (DVN): Free Stock Analysis Report

Hess Corporation (HES): 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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