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The U.S. Energy Department's weekly inventory release showed that crude stockpiles fell sharply from their all-time high level, as refiner demand strengthened and imports plunged. The report further revealed that within the ‘refined products’ category, gasoline stocks fell, while distillate supplies were up from the week-ago level.

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.

Analysis of the Data

Crude Oil: The federal government’s EIA report revealed that crude inventories fell by 6.27 million barrels for the week ending May 31, 2013, following a climb of 3.0 million barrels in the previous week that saw it reach the highest level since EIA started gathering data in 1978.

The analysts surveyed by Platts – the energy information arm of McGraw-Hill Financial Inc. (MHFI - Analyst Report) – had expected crude stocks to go down some 1 million barrels. A sharp drop in the level of imports and uptick in refinery utilization rates led to the massive stockpile drawdown with the world's biggest oil consumer.

In particular, crude inventories at the Cushing terminal in Oklahoma – the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange – were down 484,000 barrels from the previous week’s level to 50.02 million barrels. Stocks are currently just under the all-time high of 51.86 million barrels reached in Jan.

Despite the weekly inventory decrease, at 397.29 million barrels, current crude supplies are 1.8% above the year-earlier level, and exceeds the upper limit of the average for this time of the year. The crude supply cover was down from 26.2 days in the previous week to 25.7 days. In the year-ago period, the supply cover was 25.4 days.

Gasoline: Supplies of gasoline were down for the second time in as many weeks despite a decline in domestic consumption and rise in production. The fall in gasoline inventories could be attributed to lower imports.

The 366,000 barrels withdrawal – contrary to analysts’ projections for a 1 million-barrels increase in supply level – took gasoline stockpiles down to 218.80 million barrels. Notwithstanding this drawdown, the existing inventory level of the most widely used petroleum product is 7.5% higher than the year-earlier level and is close to the top half of the average range.

Distillate: Distillate fuel supplies (including diesel and heating oil) were up 2.61 million barrels last week, compared to analysts’ expectations for a 1.4 million barrels build in inventory level. The increase in distillate fuel stocks – the seventh in 8 weeks – could be attributed to weaker demand, higher imports and improved production.

At 123.27 million barrels, distillate supplies are 2.8% above the year-ago level but are in the lower limit of the average range for this time of the year.

Refinery Rates: Refinery utilization was up 2.0% from the prior week to 88.4%. The analysts were expecting the refinery run rate to increase 0.5% to 86.9%.

Zacks Rank

A bullish data from the EIA generally acts as a positive catalyst for crude prices and buoy producers, such as Exxon Mobil Corp. (XOM - Analyst Report), Chevron Corp. (CVX - Analyst Report) and ConocoPhillips (COP - Analyst Report). With an improvement in the companies’ ability to generate positive earnings surprises, they can then move higher from their current Zacks Rank #3 (Hold).
 

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