Crude Oil Gets A Boost From Lower Inventories (USO)

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June 22, 2018 6:23am NYSE:USO

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From Zacks: The U.S. Energy Department’s inventory release showed that crude stockpiles recorded a large weekly draw on the back of strong refinery runs.

As a result, the front month West Texas Intermediate (WTI) crude futures gained 1.8% (or $1.15) to $66.22 per barrel on Wednesday.

The federal data sparked widespread buying in energy stocks. In fact, some of the biggest gainers of the S&P 500 were oil and oil-related stocks like Apache Corporation (APA – Free Report) , Diamond Offshore Drilling, Inc. (DO – Free Report) , Newfield Exploration Company (NFX – Free Report) , Marathon Oil Corporation (MRO– Free Report) , Devon Energy Corporation (DVN – Free Report) and Hess Corporation (HES – Free Report) .

Nevertheless, the commodity continues to remain under pressure from reports that top suppliers Saudi Arabia and Russia are likely to step up output amid reduced supply from Iran and Venezuela. As of now, all eyes are on the oil producers’ meeting set for Jun 22 in Vienna, which will decide what happens next regarding their supply curb policy.

Analysis of the EIA Data

Crude Oil: The federal government’s EIA report revealed that crude inventories fell by 5.9 million barrels for the week ending Jun 15, following a decrease of 4.1 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 3.7 million barrels.

Record refinery throughput led to the larger-than-expected stockpile draw with the world’s biggest oil consumer even as domestic production remains at 10.9 million barrels per day – the most since the EIA started maintaining weekly data in 1983.

Oil inventories have generally trended lower in a year and a half. In fact, stockpiles have shrunk in 43 of the last 63 weeks and are down more than 80 million barrels in the past year. The gradual fall has helped the U.S. crude market shift from year-over-year storage surplus to a deficit. At 426.5 million barrels, current crude supplies are 16% below the year-ago figure and 2% under the five-year average.

Moreover, stocks at the Cushing terminal in Oklahoma – the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange – fell 1.3 million barrels to 32.6 million barrels.

The crude supply cover was down from 25.2 days in the previous week to 24.5 days. In the year-ago period, the supply cover was 29.5 days.

Gasoline: Gasoline supplies were up for the fourth time in five weeks as demand weakened. The 3.3 million barrels gain – defying the polled number of one million barrels fall in supply level – took gasoline stockpiles up to 240 million barrels. Following last week’s addition, the stock of the most widely used petroleum product inched closer to the year-earlier level and is 6% over the five-year range.

Distillate: Distillate fuel supplies (including diesel and heating oil) went up 2.7 million barrels last week, again contrary to analysts’ expectations for 700,000 barrels decrease in supply level. The weekly rise could be attributed to lower demand. At 117.4 million barrels, current supplies are 23% below the year-ago level and 14% lower than the five-year average.

Refinery Rates: Refinery utilization was up by 1% from the prior week to 96.7% – the highest in 2018.

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 United States Oil Fund LP ETF (USO) rose $0.17 (+1.28%) in premarket trading Friday. Year-to-date, USO has gained 10.82%, versus a 3.18% rise in the benchmark S&P 500 index during the same period.

USO currently has an ETF Daily News SMART Grade of B (Buy), and is ranked #35 of 116 ETFs in the Commodity ETFs category.

This article is brought to you courtesy of Zacks Research.

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