Oil Up On Bullish Inventory Draw, Gasoline Build A Worry

The U.S. Energy Department's weekly inventory release showed that crude stockpiles recorded a larger-than-expected drop. The report further revealed that within the ‘refined products’ category, gasoline stocks rose, while distillate supplies were down from the week-ago level. Meanwhile, refiners scaled up their utilization rates.

The drawdown in U.S. crude stocks lifted the commodity from 2-month lows. But the impact was limited on account of a surprise build in gasoline supplies despite rising summer demand.

As a result, West Texas Intermediate (WTI) crude futures edged up 0.7% (or 29 cents) to settle at $44.94 per barrel Wednesday.

Analysis of the EIA Data

Crude Oil: The federal government’s EIA report revealed that crude inventories decreased by 2.34 million barrels for the week ending July 15, 2016, following a decline of 2.55 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 1.25 million barrels. An uptick in refinery demand led to the higher-than-expected stockpile drawdown with the world's biggest oil consumer even as imports and production rose.

However, crude inventories at the Cushing terminal in Oklahoma – the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange – edged up 189,000 barrels from previous week’s level to 64.11 million barrels.

Despite the ninth straight week of inventory decline, at 519.46 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 31.4 days in the previous week to 31.1 days. In the year-ago period, the supply cover was 27.8 days.

Gasoline: Despite healthy demand, supplies of gasoline were up for the second time in two weeks – the culprit being higher imports. The 911,000 barrels build – contrary to the the analysts’ polled number of 625,000 barrels decrease in supply level – took gasoline stockpiles up to 241 million barrels. Following last week’s increase, the existing stock of the most widely used petroleum product is 11% 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 by a modest 214,000 barrels last week, as opposed to analysts’ expectations for an 875,000 barrels rise in inventory level. The decrease in distillate fuel stocks – for the third time in four weeks – could be attributed to lower production and strengthening demand. At 152.78 million barrels, distillate supplies are 8% higher than the year-ago level and are above the upper half of the average range for this time of the year.

Refinery Rates: Refinery utilization was down by 0.9% from the prior week to 93.2%.

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) .