U.S. Crude Supplies Slump Amid Record Refining

The U.S. Energy Department's inventory release showed that crude stockpiles declined for the eighth straight week, continuing to drag down the overall surplus. Moreover, gasoline inventories dropped sharply ahead of the start to the summer driving season and refiners processed a record amount of crude.

While these data sets might be considered as bullish, West Texas Intermediate (WTI) crude futures edged up a mere 0.1% (or 4 cents) to $48.36 per barrel Thursday. Prices were kept in check by the continued rise in domestic production thanks to soaring shale output. The Trump administration’s decision to opt out of the Paris climate change accord also caused some profit-taking as this could encourage more oil drilling in the U.S., possibly intensifying the global supply glut.

Analysis of the EIA Data

Crude Oil: The federal government’s EIA report revealed that crude inventories fell by 6.43 million barrels for the week ending May 12, 2017, following a decline of 4.43 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 3.2 million barrels. A surge in refinery crude runs to record highs and dip in imports led to the big stockpile draw with the world's biggest oil consumer even as domestic production continued to increase to levels not seen since Aug 2015.

Importantly, stocks at the Cushing terminal in Oklahoma – the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange – inched down 747,000 barrels from previous week’s level to 64.82 million barrels.

While the eighth straight inventory reduction will further help narrow the year-over-year storage surplus, the U.S. still remains awash with excess oil. At 509.91 million barrels, current crude supplies are up 1.1% from the year-ago period and are in the upper limit of the average range during this time of the year.

The crude supply cover was down from 30.2 days in the previous week to 29.7 days. In the year-ago period, the supply cover was 32.9 days.

Gasoline: Supplies of gasoline were down for the fourth week in a row on strengthening demand and lower imports. The 2.86 million barrels draw – way above polled number of 1.1 million barrels drop in supply level – took gasoline stockpiles down to 237.02 million barrels. Following last week’s decline, the existing stock of the most widely used petroleum product is 0.7% lower than the year-earlier level but is near the upper half of the average range.

Distillate: Distillate fuel supplies (including diesel and heating oil) went up by modest 394,000 barrels last week, contrary to the analysts’ expectations for 300,000 barrels fall. Despite past week’s increase in distillate fuel stocks, at 146.73 million barrels, supplies are 1.9% lower than the year-ago level but are close to the upper half of the average range for this time of the year.

Refinery Rates: Refinery utilization was up by 1.5% from the prior week to 95.0%.

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 Valero Energy Corp. (NYSE:VLO) , Phillips 66 (NYSE:PSX) and HollyFrontier Corp. (NYSE:HFC) . Each of these firms has a Zacks Rank #3 (Hold).

In case you are looking for energy names for your portfolio, one could opt for Canadian Natural Resources Ltd. (TO:CNQ) . It has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Calgary, Alberta-based Canadian Natural Resources is engaged in the acquisition, development and exploitation of crude oil and natural gas properties. The 2017 Zacks Consensus Estimate for this company is $1.30, representing some 720% earnings per share growth over 2016. Next year’s average forecast is $2.51, pointing to another 93% growth.

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