Back to top

Image: Bigstock

Oil Gains as Middle East Risks Offset Surprise Stock Build

Read MoreHide Full Article

Oil prices rose 85 cents, or 1.4%, to $62.87 a barrel on Thursday, hitting the highest levels since May 1 on rising threat of supply disruptions due to mounting tensions in the Middle East. The escalating tension was enough to offset the impact of U.S. Energy Department's latest inventory release. The report showed that crude stockpiles recorded an unexpected weekly build, ballooning to their highest since September 2017.

Overall, crude is being supported by the so-called OPEC+ deal that is cutting production by around 1.2 million barrels per day until the end of June. U.S. sanctions against Venezuela and Iran also continue to tighten the commodity’s fundamentals.

The positive sentiments helped push oil prices to their highest level in six months recently. While crude futures have eased back slightly from their multi-month highs, it continues to remain within touching distance of the $65-a-barrel mark.

Analysis of the EIA Data

Crude Oil: The federal government’s EIA report revealed that crude inventories rose by 5.4 million barrels for the week ending May 10 to a 20-month high. The analysts had expected crude stocks to go down some 1.4 million barrels. Higher imports, partly offset by strong refiner demand, led to the surprise stockpile build with the world's biggest oil consumer.

The latest report also shows that stocks at the Cushing terminal in Oklahoma rose to their highest since December 2017. Inventories at the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange was up 1.8 million barrels to 47.8 million barrels.

At 472 million barrels, current crude supplies are 9.2% above the year-ago figure and 2% over the five-year average. The crude supply cover edged up from 28.5 days in the previous week to 28.6 days. In the year-ago period, the supply cover was 26.1 days.

Gasoline: Gasoline supplies tallied a 12th drop in 13 weeks as imports fell. The 1.1 million barrels decline – higher than the polled number of 600,000 barrels draw – took gasoline stockpiles down to 225 million barrels. Following last week’s decrease, the stock of the most widely used petroleum product is now 3% below the year-earlier and 2% under the five-year range.

Distillate: Distillate fuel supplies (including diesel and heating oil) edged up 84,000 barrels last week, while analysts were looking for an inventory draw of around 500,000 barrels. The nominal increase could be attributed to production growth. Current supplies – at 125.6 million barrels – are 9.3% higher than the year-ago level though stocks remain 4% below than the five-year average.

Refinery Rates: Refinery utilization was up by 1.6% from the prior week to 90.5%.

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 (XOM - Free Report) , Chevron (CVX - Free Report) and ConocoPhillips (COP - Free Report) , and refiners such as Valero Energy (VLO - Free Report) , Phillips 66 (PSX - Free Report) and Marathon Petroleum (MPC - Free Report) .

Want to Own an Energy Stock Now?

While easing oversupply concerns and American sanctions on Iran and Venezuela helped oil to bounce back to $65 recently, it remains to be seen if it can maintain the recent gains. One factor that could undermine the efforts to tighten the market is the seemingly relentless increase in crude oil production across the U.S. shale patch. There are also concerns that the worsening U.S.-China trade spat could lead to a major slowdown in global economy and translate into weak demand for the commodity.

Meaning, there remains a lot of uncertainty around the commodity right now, which can lead to volatility and price fluctuations. At this time, it might be prudent for investors to maintain caution and look for fundamentally sound stocks.

If you are looking for a near-term energy play, Continental Resources, Inc. might be a good selection. Continental Resources has a Zacks Rank #2 (Buy).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Over 30 days, the Oklahoma City-based Continental Resources has seen the Zacks Consensus Estimate for 2019 and 2020 increase 25.6% and 17.9%, to $2.80 and $3.49 per share, respectively.

Breakout Biotech Stocks with Triple-Digit Profit Potential

The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.

Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +98%, +119% and +164% in as little as 1 month. The stocks in this report could perform even better.

See these 7 breakthrough stocks now>>

Published in