Bear Market Grips Crude Stocks As U.S. Production Grows
Zacks Investment Research | Jun 22, 2017 09:01PM ET
The U.S. Energy Department's inventory release showed that crude stockpiles recorded a second straight weekly drop. The report further revealed that gasoline inventories fell slightly from previous week, while distillate stocks recorded a surprise rise. Meanwhile, refinery activity slowed. However, the talking point from the data sets was the steady trend of rising domestic oil production that continues to be the biggest headwind for the market.
As a result, West Texas Intermediate (WTI) crude futures shed 2.3% (or 98 cents) to $42.53 per barrel Wednesday – the lowest settlement since Aug 10. The commodity managed to recoup some of that loss yesterday, finishing at $42.74 (up 21 cents or 0.5%) but still in the bear-market territory.
Energy Sell-Off Continues
The federal data sparked widespread selling in energy stocks, which pushed the Energy Select Sector SPDR – an assortment of the largest U.S. energy companies – down almost 2% Wednesday.
The two energy representatives in the 30-stock Dow Jones industrial average, ExxonMobil Corp. (NYSE:XOM) and Chevron Corp. (NYSE:CVX) were down more than 1%. Meanwhile, some of the biggest casualties of the S&P 500 over the past few weeks have been Pioneer Natural Resources Co. (NYSE:PXD) , Concho Resources Inc. (NYSE:CXO) , Hess Corp. (NYSE:HES) and Cimarex Energy Co. (NYSE:XEC) .
Analysis of the EIA Data
Crude Oil: The federal government’s EIA report revealed that crude inventories decreased by 2.45 million barrels for the week ending June 16, 2017, following a decrease of 1.66 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 2 million barrels. A Declining in imports led to the higher-than-expected stockpile draw with the world's biggest oil consumer even as domestic production continued to increase (now at their highest level since Aug 2015) and refinery activity edged lower.
Importantly, stocks at the Cushing terminal in Oklahoma – the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange – was down 1.08 million barrels from previous week’s level to 61.14 million barrels.
While the tenth inventory reduction in 11 weeks will further help narrow the year-over-year storage surplus, the U.S. still remains awash with excess oil. At 509.10 million barrels, current crude supplies are up 1.8% from the year-ago period and are in the upper half of the average range during this time of the year.
The crude supply cover, at 29.5 days, remained unchanged from the previous week. In the year-ago period, the supply cover was 32.4 days.
Gasoline: Supplies of gasoline were down for the first time in three weeks as demand jumped. The 578,000 barrels draw – less than the polled number of 750,000 barrels fall in supply level – took gasoline stockpiles down to 241.87 million barrels. Despite last week’s decrease, the existing stock of the most widely used petroleum product is currently sitting 1.8% higher than the year-earlier level and is above the upper limit of the average range.
Distillate: Distillate fuel supplies (including diesel and heating oil) went up by 1.08 million barrels last week, contrary to analysts’ expectations for 250,000 barrels decrease in supply level. The fourth successive weekly increase in distillate fuel stocks could be attributed to rise in imports and production. Following past week’s increase in distillate fuel stocks, at 152.50 million barrels, supplies have moved marginally higher than the year-ago level and are over the upper limit of the average range for this time of the year.
Refinery Rates: Refinery utilization was down by 0.4% from the prior week to 94.0%.
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. (XOM), Chevron Corp. (CVX) and ConocoPhillips (NYSE:COP), and refiners such as Tesoro Corp. (NYSE:TSO), Phillips 66 (NYSE:PSX) and HollyFrontier Corp. (HFC). Each of these firms has a Zacks Rank #3 (Hold).
Stock to Buy
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 Zacks Investment Research
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