U.S. Crude Falls Into Bear Market on Massive Inventory Build

Oil prices fell $1.80, or 3.4%, to $51.68 a barrel on Wednesday, hitting the lowest settlement level since January following the U.S. Energy Department's latest inventory release. That put WTI down 22% from its Apr 23 high of $66.30, officially meeting the definition of a bear market.

The report showed that crude stockpiles recorded another unexpected weekly build, ballooning to their highest since July 2017 as domestic output hit 12.4 million barrels a day for the very first time. On a further bearish note, the report revealed that refined product inventories – gasoline and distillate – both increased sharply from their previous week levels.

Investors Dump Energy Stocks

The federal data sparked widespread selling in energy stocks, which pushed the Energy Select Sector SPDR – an assortment of the largest U.S. energy companies – down more than 1% Wednesday. Consequently, some of, the biggest casualties of the S&P 500 included energy-related names like Cimarex Energy XEC, Occidental Petroleum OXY, Halliburton HAL, National Oilwell Varco NOV, ConocoPhillips COP and Diamondback Energy FANG.

Analysis of the EIA Data

Crude Oil: The federal government’s EIA report revealed that crude inventories rose by 6.8 million barrels for the week ending May 31 to a nearly 2-year high. The analysts had expected crude stocks to go down some 1.7 million barrels. Record high domestic production and sharp rise in imports led to the year’s second biggest stockpile build with the world's biggest oil consumer.

In particular, output in the United States rose by 100,000 barrels per day last week to 12.4 million barrels per day – the most since the EIA started maintaining weekly data in 1983. Meanwhile, imports jumped 1.1 million barrels.

Oil inventories have generally trended higher since mid-March. In fact, stockpiles have expanded in 8 of the last 11 weeks and are up nearly 44 million barrels (or 10%) during the period.

The latest report also shows that stocks at the Cushing terminal in Oklahoma rose to their highest since December 2017. Inventories at the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange was up 1.8 million barrels to 50.8 million barrels.

At 483.3 million barrels, current crude supplies are 10.7% above the year-ago figure and 6% over the five-year average. The crude supply cover was up from 28.7 days in the previous week to 28.9 days. In the year-ago period, the supply cover was 25.8 days.

Gasoline: Gasoline supplies tallied a third successive weekly gain as imports and production rose. The 3.2 million barrels-addition – dwarfing the polled number of 208,000 barrels build – took gasoline stockpiles up to 234.1 million barrels. Taking into account last week’s increase, the stock of the most widely used petroleum product is now 2% above the five-year average range though it remains 2% below the year-earlier level.

Distillate: Distillate fuel supplies (including diesel and heating oil) surged 4.6 million barrels last week, while analysts were looking for an inventory draw of around 1.08 million barrels. The massive increase could be attributed to lower demand even as refiners continued to churn out distillates at a brisk rate. Current supplies – at 129.4 million barrels – are 10.8% higher than the year-ago level though stocks remain 3% below than the five-year average.

Refinery Rates: Refinery utilization was up by 0.6% from the prior week to 91.8%.

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.

Want to Own an Energy Stock Now?

In case you are looking for a near-term energy play despite all the bearish sentiment around, Continental Resources, Inc. CLR might be a good selection. Continental Resources has a Zacks Rank #2 (Buy).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Over 60 days, the Oklahoma City-based Continental Resources has seen the Zacks Consensus Estimate for 2019 increase 27% to $2.83 per share.

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National Oilwell Varco, Inc. (NOV): Free Stock Analysis Report

Halliburton Company (HAL): Free Stock Analysis Report

Continental Resources, Inc. (CLR): Free Stock Analysis Report

Diamondback Energy, Inc. (FANG): Free Stock Analysis Report

Cimarex Energy Co (XEC): Free Stock Analysis Report

ConocoPhillips (COP): Free Stock Analysis Report

Occidental Petroleum Corporation (OXY): Free Stock Analysis Report

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