U.S. Crude Inventories Slump As Exports Reach Record High

The U.S. Energy Department's inventory release showed that crude stockpiles fell more than expected as exports jumped to a new record. The report further revealed that gasoline inventories rose from previous week, while distillate stocks recorded a fall. Meanwhile, refinery activity continued to rebound from post-Hurricane Harvey challenges.

However, the positive effect from the hefty crude inventory draw was more than offset by the news of production resumption at Libya’s largest oil field and slipping compliance to OPEC’s output cut deal.

As a result, West Texas Intermediate (WTI) crude futures lost 0.9% (or 44 cents) to settle at $49.98 per barrel Wednesday – the lowest settlement since Sep 19.

Analysis of the EIA Data

Crude Oil: The federal government’s EIA report revealed that crude inventories slumped by 6 million barrels for the week ending Sep 29, following a decrease of 1.8 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 1.5 million barrels.

Soaring exports in the wake of widening Brent premium to WTI led to the big stockpile draw with the world's biggest oil consumer. A discount in U.S. oil prices to the global benchmark Brent (or a larger spread) makes domestic crude attractive in overseas markets.

The rapid decline of oil inventories in recent months has helped the U.S. crude market shift from year-over-year storage surplus to a deficit. At 465 million barrels, current crude supplies are marginally below the year-ago period. However, stocks are close to the upper 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 1.5 million barrels to 62.5 million barrels.

The crude supply cover was down from 31.5 days in the previous week to 30.3 days. In the year-ago period, the supply cover was 30.4 days.

Gasoline: Supplies of gasoline were up for the second week running as refinery throughput decreased. The 1.6 million barrels addition – slightly above the polled number of 1.5 million barrels rise in supply level – took gasoline stockpiles up to 218.9 million barrels. Despite last week’s increase, the existing stock of the most widely used petroleum product is remains 3.7% below the year-earlier level but is in the upper limit of the average range.

Distillate: Distillate fuel supplies (including diesel and heating oil) went down by 2.6 million barrels last week, compared with analysts’ expectations for 2.4 million barrels decrease in supply level. The weekly fall could be attributed to strengthening demand. At 135.4 million barrels, current supplies are 15.7% below the year-ago level but are in the top half of the average range for this time of the year.

Refinery Rates: Refinery utilization was up by 5.4% from the prior week to 88.6%. While refinery runs have rebounded from storm-induced nine-year lows, it’s still a far cry from the pre-Harvey rates of 96.6% - the highest since 2005.

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 Marathon Petroleum Corp. (NYSE:MPC) .

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Headquartered in Fort Worth, TX, Lonestar is oil and gas exploration and production company with primary focus on the Eagle Ford Shale in South Texas. The 2017 Zacks Consensus Estimate for this company is a loss of 62 cents, some 79.7% narrower than 2016. Next year’s average forecast is a loss of 34 cents, pointing to another 45.2% improvement on the back of accretive acquisitions and attractive well economics.

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