Oil At 7-Month High As EIA Reports Big Inventory Draw

The U.S. Energy Department's weekly inventory release showed that crude stockpiles recorded a large drop. What’s more, supplies at the Cushing, OK storage hub also retreated from their highest level on record. The report further revealed that distillate inventories decreased from its previous week level.

Crude Touches $50

Following these bullish data sets and other associated positive developments, oil prices briefly traded above the psychologically important $50 per barrel level on Thursday – the first time since October.

Predictably, this has had a positive effect on the sector components. In particular, savvy investors might view the price bump as the impetus the stocks need after freefalling for two years. Undoubtedly, still a long way to go, but improving crude prices may have already primed certain oil producers and linked entities for upward momentum.

Analysis of the EIA Data

Crude Oil: The federal government’s EIA report revealed that crude inventories decreased by 4.23 million barrels for the week ending May 20, 2016, following a rise of 1.31 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 by 3.3 million barrels. A pullback in the level of imports led to the larger-than-expected stockpile drawdown with the world's biggest oil consumer.

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 649,000 barrels from previous week’s all-time high level to 67.62 million barrels.

Despite the second inventory decline in 3 weeks, at 537.07 million barrels, current crude supplies are up 12% from the year-ago period and are at the highest level during this time of the year.

The crude supply cover was down from 33.6 days in the previous week to 33.1 days. In the year-ago period, the supply cover was 29.5 days.

Gasoline: Supplies of gasoline were up for the first time in 3 weeks as demand weakened. The 2.04 million barrels rise – contrary analysts’ polled number of 1.6 million barrels decrease in supply level – took gasoline stockpiles up to 240.11 million barrels. Following last week’s build, the existing stock of the most widely used petroleum product is 9% higher than the year-earlier level and is comfortably above the upper half of the average range.

Distillate: Distillate fuel supplies (including diesel and heating oil) fell 1.28 million barrels last week, easily outpacing analysts’ expectations for a 900,000 barrels drop in inventory level. The decrease in distillate fuel stocks – the sixth in as many weeks – could be attributed to lower production. But at 150.88 million barrels, distillate supplies are still 17% higher than the year-ago level and are well above the upper half of the average range for this time of the year.

Refinery Rates: Refinery utilization was down by 0.8% from the prior week to 89.7%.

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 Exxon Mobil Corp. (NYSE:XOM) , Chevron Corp. (NYSE:CVX) and ConocoPhillips (NYSE:COP) , and refiners such as Valero Energy Corp. (NYSE:VLO) , Phillips 66 (NYSE:PSX) and HollyFrontier Corp. (NYSE:HFC) .