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The U.S. Energy Department's weekly inventory release showed that crude stockpiles logged a smaller-than-expected decline. The report further revealed that within the ‘refined products’ category, gasoline stocks fell, while distillate supplies were up from the week-ago level. Meanwhile, refiners scaled up their utilization rates by 0.5%.
Following the decline in U.S. crude inventories, the high probability of a military intervention in Syria and a report showing expansion in domestic services sector, oil prices crept higher, settling above $108 a barrel.
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.
Analysis of the Data
Crude Oil: The federal government’s EIA report revealed that crude inventories fell by 1.84 million barrels for the week ending Aug 30, 2013, following an increase of 2.99 million barrels in the previous week.
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 2.5 million barrels. An uptick in refinery processing rates and lower imports led to the stockpile drawdown with the world's biggest oil consumer even as domestic production continued to spike, now at their highest level since 1989.
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 1.83 million barrels from the previous week’s level to 34.76 million barrels. Stocks are currently at their lowest since Feb last year and 33.0% under the all-time high of 51.86 million barrels reached in Jan.
Despite the eighth inventory decrease in 10 weeks, at 360.21 million barrels, current crude supplies are up slightly (by 0.9%) from the year-ago period and are close to the upper limit of the average for this time of the year. The crude supply cover was down marginally from 22.9 days in the previous week to 22.8 days. In the year-ago period, the supply cover was 23.4 days.
Gasoline: Supplies of gasoline were down for the fourth time in as many weeks, as domestic consumption strengthened, while production and imports dropped.
The 1.83 million barrels withdrawal – above analysts’ projections for a 1 million-barrels decrease in supply level – took gasoline stockpiles down to 215.99 million barrels. Notwithstanding this drawdown, the existing inventory level of the most widely used petroleum product is still 8.6% higher than the year-earlier level and is in the top half of the average range.
Distillate: Distillate fuel supplies (including diesel and heating oil) edged up 549,000 barrels last week, lower than analysts’ expectations for an 800,000 barrels rise in inventory level. The increase in distillate fuel stocks – the fourth in 5 weeks – could be attributed to weakening demand and higher output, partially offset by lower imports.
At 129.59 million barrels, distillate supplies are 2.0% above the year-ago level but is close to the lower limit of the average range for this time of the year.
Refinery Rates: Refinery utilization edged up 0.5% from the prior week to 91.7%. The analysts were expecting the refinery run rate to decrease 0.8% to 90.4%.
Stocks to Consider
With spot crude price staying strong – at around $108 a barrel – brokerage analysts are likely to upgrade their forecasts on oil-weighted companies and related support plays, leading to positive estimate revisions.
While all crude-focused stocks – including behemoths like Exxon Mobil Corp. (XOM - Analyst Report) and Chevron Corp. (CVX - Analyst Report) – stand to benefit from rising commodity prices, companies in the exploration and production (E&P) sector are the best placed, as they will be able to extract more value for their products.
In particular, one can look at Matador Resources Co. (MTDR - Snapshot Report) – a small-cap, undervalued E&P player – as a good buying opportunity. Dallas TX-based Matador Resources, sporting a Zacks Rank #1 (Strong Buy), with current focus on the high-return Eagle Ford shale formation in South Texas, is expected to witness earnings growth of an astounding 390% in 2013.