Oil At 3-Year High As Geopolitical Risks Offset Stock Build

The U.S. Energy Department's inventory release showed that crude stockpiles recorded a big weekly build as domestic oil production reached another all-time high.

Middle East Tensions Overshadow EIA Data

However, oil traders chose to overlook bearish trends from the EIA data set and were more concerned about the uncertainty surrounding mounting tensions in the Middle East and the resultant fears of supplies being disrupted. The commodity settled at a three-year high of $66.82 per barrel yesterday after President Trump hinted at the possibility of a military strike against Syria, and Saudi Arabia claimed to have intercepted missiles fired by Yemeni rebels.

Analysis of the EIA Data

Crude Oil: The federal government’s EIA report revealed that crude inventories rose by 3.3 million barrels for the week ending Apr 6, following a decrease of 4.6 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 up some 100,000 barrels.

Record-high domestic production and surging imports led to the larger-than-expected build with the world's biggest oil consumer even as refiner demand strengthened.

In particular, U.S. output rose by 65,000 barrels per day last week to more than 10.5 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.

While oil inventories rose last week, stockpiles have actually shrunk in 37 of the last 53 weeks and are down nearly 105 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 428.6 million barrels, current crude supplies are 20% below the year-ago period and are in the bottom half of the average range during this time of the year.

Meanwhile, stocks at the Cushing terminal in Oklahoma – the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange – was up by 1.1 million barrels to 36 million barrels.

At 25.4 days, the crude supply cover was unchanged from the previous week. In the year-ago period, the supply cover was 32.7 days.

Gasoline: Gasoline supplies recorded their first increase in six weeks as production edged up. The 458,000 barrels build – contrary to the polled number of 2 million barrels fall in supply level – took gasoline stockpiles up to 238.9 million barrels. Despite last week’s rise, the stock of the most widely used petroleum product remains just 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) were down 1 million barrels last week, slightly lower than analysts’ expectations for 1.2 million barrels decrease in supply level. The weekly fall could be attributed to higher demand. At 128.5 million barrels, current supplies are 15% 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 by 0.5% from the prior week to 93.5%.

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 (NYSE:XOM) , Chevron (NYSE:CVX) and ConocoPhillips (NYSE:COP) , and refiners such as Valero Energy (NYSE:VLO) , Phillips 66 (NYSE:PSX) and Marathon Petroleum (NYSE:MPC) .

Want to Own an Energy Stock Now?

If you are looking for a near-term energy play, Concho Resources Inc. (NYSE:CXO) may be an excellent selection. This company has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Concho Resources is an independent oil and gas exploration and production company with producing properties mainly in the Permian Basin of southeast New Mexico and west Texas. It has a 100% track of outperforming estimates over the last four quarters at an average rate of 48.89%.

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