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Oil Breaks $50 Barrier for Best Finish in More Than 6 Weeks

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The U.S. Energy Department's inventory release showed that crude stockpiles recorded a large build, triggered by nine-year low refinery activity following last month’s Hurricane Harvey. Moreover, with almost a quarter of the nation’s fuel processing capacity shut down in the immediate aftermath of the catastrophe, product inventories (gasoline and distillate) fell sharply.

While the data sets were neither overly optimistic or pessimistic fundamentally and much of what came out of the report was anyways expected, bullish commentary regarding world demand catapulted crude above $50 a barrel for the first time since Jul 31 yesterday.

Eventually, West Texas Intermediate (WTI) crude futures gained 1.2% (or 59 cents) to settle at $49.89 per barrel Thursday.

Improving Supply-Demand Narrative

Energy bodies OPEC and IEA both recently raised global oil demand forecasts for this year, helping to tighten the market significantly.

Further, the Paris-based IEA said that the global oil supply had come down by 720,000 per day last month to 97.7 million barrels on outages and maintenance in non-OPEC countries.  

Meanwhile, according to the OPEC’s latest monthly report, the oil cartel’s production fell by 79,000 barrels a day in August to 32.76 million as output dropped in Libya, Gabon, Venezuela and Iraq. This points to the success of the 14-member group’s output curb initiatives and rising compliance levels.

Adding to the positive momentum, OPEC and fellow exporters are said to be open to extending their production cut agreement beyond its March expiry.

Analysis of the EIA Data

Crude Oil: The federal government’s EIA report revealed that crude inventories jumped by 5.9 million barrels for the week ending Sep 8, following an increase of 4.6 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 up some 10.1 million barrels.

Lower refinery throughput due to lingering Hurricane Harvey effects on Gulf Coast units, together with volume ramp-up from the production facilities shuttered in the wake of the storm, led to the big stockpile build with the world's biggest oil consumer. Nevertheless, the build was significantly below forecasts.

At 468.2 million barrels, current crude supplies are down 2.5% from the year-ago period but are in 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 million barrels to 59.1 million barrels.

The crude supply cover was up from 27.5 days in the previous week to 29.4 days. In the year-ago period, the supply cover was 30.5 days.

Gasoline: Supplies of gasoline were down for the second week running as Gulf Coast refineries continued to be sidelined by damage from Hurricane Harvey. The massive 8.4 million barrels draw – way above the polled number of 4 million barrels and the largest since at least 1990 – took gasoline stockpiles down to 218.3 million barrels. Following last week’s slide, the existing stock of the most widely used petroleum product has fallen 4.4% 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 3.2 million barrels last week, compared with analysts’ expectations for 300,000 barrels decrease in supply level. The second successive weekly fall could be attributed to plunging production, which reached a seven-year low of 3,973 thousand barrels per day on storm-induced outages. At 144.6 million barrels, current supplies are 11.2% below the year-ago level but are in the middle of the average range for this time of the year.

Refinery Rates: Refinery utilization was down by 2% from the prior week to 77.7%. – the lowest since 2008 – as the facilities continue to recover from the impact of Harvey.

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 - Free Report) , Chevron Corp. (CVX - Free Report) and ConocoPhillips (COP - Free Report) , and refiners such as Valero Energy Corp. (VLO - Free Report) , Phillips 66 (PSX - Free Report) and Marathon Petroleum Corp. (MPC - Free Report) . Each of these firms has a Zacks Rank #3 (Hold).

Want to Own an Energy Stock Now?

If you are looking for a near-term energy play, Range Resources Corp. (RRC - Free Report) may be a good selection. This company has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Headquartered in Fort Worth, TX, Range Resources is an independent oil and gas company, engaged in the exploration, development and acquisition of oil and gas properties primarily in the southwestern, Appalachian and Gulf Coast regions of the U.S. The 2017 Zacks Consensus Estimate for this company is 48 cents, representing some 1,494.9% earnings per share growth over 2016. Next year’s average forecast is 61 cents, pointing to another 28% growth.

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