U.S. Oil Supplies Tighten

The U.S. Energy Department's weekly inventory release showed an unexpectedly strong decrease in crude inventories – the most since February 2001 – on the back of lower imports, while gasoline supplies fell after five straight weeks of increase. The agency’s bullish report further revealed that distillate stocks posted a larger-than-expected draw, as demand recovered in the face of plentiful supplies. Meanwhile, refiners reduced processing rates by 0.2%.

The Energy Information Administration ("EIA") Petroleum Status Report – which contains data for 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 businesses of companies engaged in the oil and refining industry, such as ExxonMobil (XOM - Analyst Report), Chevron Corp. (CVX - Analyst Report), ConocoPhillips (COP - Analyst Report), Valero (VLO - Analyst Report) and Tesoro (TSO - Analyst Report).

Analysis of the Data

Crude Oil: The federal government’s EIA report revealed that crude inventories shrank by a whopping 10.57 million barrels for the week ending December 16, 2011, the second straight weekly decline.

Analysts surveyed by Platts, the energy information arm of McGraw-Hill Companies Inc. (), had expected oil stocks to go down some 2.25 million barrels. A significant fall in the level of imports – hampered by fog delays in the Houston Ship Channel – led to the plunge in stockpile with the world's biggest oil consumer even as refiners lowered their utilization rates slightly.

In particular, crude inventories at the Cushing terminal in Oklahoma – the key delivery hub for U.S. crude futures – came off 990,000 barrels from last week’s level to 30.2 million barrels. Stocks reached an all-time high of 41.90 million barrels earlier this year.

At 323.58 million barrels, current crude supplies are 5.0% lower than the year-earlier level, but are in the upper limit of the average for this time of the year. The crude supply cover was down from 22.6 days in the previous week to 21.9 days. In the year-ago period, the supply cover was 23.1 days.

Gasoline: Supplies of gasoline decreased for the first time in six weeks as demand edged higher. The modest 412,000 barrels-build – against projections of a build – took gasoline stockpiles down to 218.41 million barrels. The existing inventory level is 0.6% above the year-earlier levels and is above the upper limit of the average range.

Distillate: Distillate fuel inventories (including diesel and heating oil) were down by 2.35 million barrels last week, compared with analyst expectations for a much smaller drawdown. The decrease in distillate fuel supplies – despite near-record-high production – could be attributed to a rebound in demand.

At 139.15 million barrels, distillate supplies are 13.4% below the year-ago level and are in the lower boundary of the average range for this time of the year.

Refinery Rates: Refinery utilization was down 0.2% from the prior week at 84.9%. Analysts were expecting the refinery run rate to edge up 0.3% to 85.4%.