Oil prices fell $1.71, or 2.7%, to $61.42 a barrel on Wednesday, hitting the lowest settlement level since May 13 following the U.S. Energy Department's latest inventory release. The report showed that crude stockpiles recorded another unexpected weekly build, ballooning to their highest since July 2017. In particular, analysts and industry watchers are worried over the tepid refinery runs at a time of year that typically see heightened demand for gasoline as the U.S. summer driving season takes off with Monday's Memorial Day. On a further bearish note, the report revealed that refined product inventories – gasoline and distillate – both increased from their previous week levels.
Analysis of the EIA Data
Crude Oil: The federal government’s EIA report revealed that crude inventories rose by 4.7 million barrels for the week ending May 17 to a 22-month high. The analysts had expected crude stocks to go down some 2 million barrels. Lower refinery runs and hefty decrease in exports led to the second consecutive surprise stockpile build with the world's biggest oil consumer. This was partly offset by drop in imports.
Oil inventories have generally trended higher in recent months. In fact, stockpiles have expanded in 7 of the last 9 weeks and are up more than 37 million barrels (or 8.5%) 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 1.3 million barrels to 49.1 million barrels.
At 476.8 million barrels, current crude supplies are 8.8% above the year-ago figure and 4% over the five-year average. The crude supply cover was up from 28.6 days in the previous week to 28.9 days. In the year-ago period, the supply cover was 26.4 days.
Gasoline: Gasoline supplies tallied a second gain in 4 weeks as imports jumped. The 3.7 million barrels-addition – higher than the polled number of 1 million barrels build – took gasoline stockpiles up to 228.7 million barrels. Taking into account last week’s increase, the stock of the most widely used petroleum product is now 2.2% below the year-earlier level and in thefive-year average range.
Distillate: Distillate fuel supplies (including diesel and heating oil) edged up 768,000 barrels last week, while analysts were looking for an inventory draw of around 1 million barrels. The nominal increase could be attributed to lower demand even as refiners continued to churn out distillates at a rate higher than the five-year average. Current supplies – at 126.4 million barrels – are 10.9% higher than the year-ago level though stocks remain 4% below than the five-year average.
Refinery Rates: Refinery utilization was down by 0.6% from the prior week to 89.9%.
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.
The data from EIA generally acts as a catalyst for crude prices and affect producers, such as ExxonMobil XOM, Chevron CVX and ConocoPhillips COP, and refiners such as Valero Energy VLO, Phillips 66 PSX and Marathon Petroleum MPC.
Want to Own an Energy Stock Now?
Overall, crude is beng supported by the so-called OPEC+ deal that is cutting production by around 1.2 million barrels per day until the end of June. U.S. sanctions against Venezuela and Iran also continue to tighten the commodity’s fundamentals. The positive sentiments helped push oil prices to their highest level in six months recently.
However, one factor that could undermine the efforts to tighten the market is the seemingly relentless increase in crude oil production across the U.S. shale patch. There are also concerns that the worsening U.S.-China trade spat could lead to a major slowdown in global economy and translate into weak demand for the commodity.
Meaning, there remains a lot of uncertainty around the commodity right now, which can lead to volatility and price fluctuations. At this time, it might be prudent for investors to maintain caution and look for fundamentally sound stocks.
If you are looking for a near-term energy play, Continental Resources, Inc. CLR might be a good selection. Continental Resources has a Zacks Rank #2 (Buy).
Over 30 days, the Oklahoma City-based Continental Resources has seen the Zacks Consensus Estimate for 2019 increase 12% to $2.86 per share.
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