First Crude Supply Dip in 11 Weeks

The U.S. Energy Department's weekly inventory release showed that crude stockpiles fell for the first time in 11 weeks – from their 22-year high levels – as imports declined and refinery activity rose by an impressive 1.9%. The agency’s report further revealed that refined product inventories – gasoline and distillate – increased from their previous week levels on weaker demand.

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 Corp. (XOM - Analyst Report), Chevron Corp. (CVX - Analyst Report), ConocoPhillips (COP - Analyst Report), Valero Energy Corp. (VLO - Analyst Report) and Tesoro Corp. (TSO - Analyst Report).

Analysis of the Data

Crude Oil: The federal government’s EIA report revealed that crude inventories fell by 111,000 barrels for the week ending June 1, 2012, after climbing by 2.21 million barrels the week before. In fact, oil supplies decreased for the first time in 11 weeks after shooting up by 38.45 million barrels during the period March 16– May 25, 2012, the largest 10-week accumulation in over a decade.

Analysts surveyed by Platts, the energy information arm of McGraw-Hill Companies Inc. (MHP), had expected oil stocks to go down some 1 million barrels. A decline in the level of imports and sharply higher refinery activity led to the stockpile drawdown with the world's biggest oil consumer.

However, crude inventories at the Cushing terminal in Oklahoma – the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange – increased by 926,000 barrels from previous week’s level to hit a new all-time high of 47.78 million barrels.

At 384.63 million barrels, current crude supplies are 4.2% above the year-earlier level, and are over the upper limit of the average for this time of the year. The crude supply cover was down from 25.7 days in the previous week to 25.4 days. In the year-ago period, the supply cover was 25.0 days.

Gasoline: Supplies of gasoline snapped a 15-week declining streak as domestic consumption edged down 3.2% to 8.65 million barrels a day and imports rose. This was partially offset by lower production.

The 3.35 million barrels gain – compared to analyst projections for a 500,000 hike in supply level – took gasoline stockpiles up to 203.53 million barrels, after stumbling to the lowest level since November 2008 in the previous week. The existing inventory level of the most widely used petroleum product is still 5.1% below the year-earlier levels and is in the lower limit of the average range.

Distillate: Distillate fuel supplies (including diesel and heating oil) increased by 2.25 million barrels last week, much larger than analyst expectations for a 600,000 barrel build. The rise in distillate fuel stocks – just the third increase in 17 weeks – could be attributed to weaker demand and higher imports.

At 120.04 million barrels, distillate supplies are 14.8% below the year-ago level and are in the lower limit of the average range for this time of the year.

Refinery Rates: Refinery utilization was up 1.9% from the prior week at 91.0%. Analysts were expecting the refinery run rate to increase 0.6%.