Oil Volatility Continues Amid Soaring Fuel, Cushing Stocks

The U.S. Energy Department's inventory release showed that crude stockpiles declined for the fourth straight week, continuing to drag down the overall surplus.

But strategic supplies at the Cushing, OK storage experienced the biggest weekly build in years. On a further bearish note, the report revealed that refined product inventories – gasoline and distillate – both increased handsomely from their previous week levels.

The negative data set, coupled with skepticism over OPEC’s production cut deal, has meant that the oil market continues to remain volatile with a lot of uncertainties.

Analysis of the EIA Data

Crude Oil: The federal government’s EIA report revealed that crude inventories fell by 2.39 million barrels for the week ending Nov 11, 2016, following a decline of 884,000 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 1.7 million barrels. An uptick in refinery activity led to the higher-than-expected stockpile draw with the world's biggest oil consumer.

Following a run of drawdowns in recent months, the year-over-year storage surplus has narrowed down considerably. Nonetheless, U.S. remains awash with excess oil. At 485.76 million barrels, current crude supplies are up 7% from the year-ago period and are at upper limit of the average range for this time of year.

Worryingly, stocks at the Cushing terminal in Oklahoma – the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange – jumped 3.78 million barrels from previous week’s level. The hefty increase, the biggest since 2009, took inventories at the oil hub to 65.29 million barrels.

The crude supply cover was down from 30.2 days in the previous week to 29.8 days. In the year-ago period, the supply cover was 29.5 days.

Gasoline: Supplies of gasoline were up for the fourth straight week on weakening demand, partly offset by falling imports and production. The 3.43 million barrels build –significantly above the analysts’ polled number of 900,000 barrels increase in supply level – took gasoline stockpiles up to 229.55 million barrels. Subsequent to last week’s increase, the existing stock of the most widely used petroleum product is 5% higher than the year-earlier level and is well above the upper half of the average range.

Distillate: Distillate fuel supplies (including diesel and heating oil) went up by 2.50 million barrels last week, again dwarfing analysts’ expectations for a 100,000-barrels rise. The fourth successive weekly increase in distillate fuel stocks could be attributed to lower demand, somewhat neutralized by a fall in imports and production. At 156.70 million barrels, distillate supplies are 5% higher than the year-ago level and are sitting over the upper half of the average range for this time of the year.

Refinery Rates: Refinery utilization was up by 0.6% from the prior week to 90.4%.

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 Corp. (NYSE:XOM) , Chevron Corp. (NYSE:CVX) and ConocoPhillips (NYSE:COP) , and refiners such as Tesoro Corp. (NYSE:TSO) , Phillips 66 (NYSE:PSX) and HollyFrontier Corp. (NYSE:HFC) .

However, each of these firms has a Zacks Rank #3 (Hold), which does not make them screaming buys. In case you are looking for energy names for your portfolio, one could opt for Diamondback Energy Inc. (NASDAQ:FANG) . It has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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