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Crude Remains Firm on Cushing Supply Tumble

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The U.S. Energy Department's weekly inventory release showed that crude stockpiles logged a small decline. The report further revealed that refined product inventories – gasoline and distillate – both increased from their previous week levels on weakening demand. Meanwhile, refiners scaled up utilization rates to reach their highest point for this time of year since 2006.

Importantly, supplies at the Cushing, Oklahoma storage hub tumbled to its lowest since Feb 2012, helped by improved refinery runs. This helped crude prices settle above the $107 a barrel level even as Syrian tensions eased.

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 a marginal 219,000 barrels for the week ending Sep 6, 2013, following a decrease of 1.84 million barrels in the previous week.

The analysts surveyed by Platts – the energy information arm of McGraw-Hill Financial Inc. – had expected crude stocks to go down some 2 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 639,000 barrels from the previous week’s level to 34.12 million barrels. Stocks are currently at their lowest since Feb last year and 34.2% under the all-time high of 51.86 million barrels reached in Jan.

Despite the ninth inventory decrease in 11 weeks, at 359.99 million barrels, current crude supplies are still up slightly (by 0.3%) 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 22.8 days in the previous week to 22.7 days. In the year-ago period, the supply cover was 24.0 days.

Gasoline: Supplies of gasoline were up for the first time in 5 weeks, as domestic consumption weakened. This was partially offset by lower imports.

The 1.66 million barrels gain – contrary to analysts’ projections for a 1 million-barrels decrease in supply level – took gasoline stockpiles up to 217.65 million barrels. Following this build, the existing inventory level of the most widely used petroleum product is 10.1% 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) jumped 2.59 million barrels last week, significantly higher than analysts’ expectations for an 800,000 barrels rise in inventory level. The increase in distillate fuel stocks – the fifth in 6 weeks – could be attributed to weakening demand and higher imports.

At 132.17 million barrels, distillate supplies are 2.8% 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 0.8% from the prior week to an eight-week high level of 92.5%.

Stocks to Consider

With spot crude price staying strong – at around $107 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 - Free Report) and Chevron Corp. (CVX - Free 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 Whiting Petroleum Corp. (WLL - Free Report) – a mid-cap, undervalued E&P player – as a good buying opportunity. Denver-based Whiting Petroleum, sporting a Zacks Rank #1 (Strong Buy), with current focus on the high-return Bakken resource play in North Dakota, is expected to witness earnings growth of 15% in 2013 and 10% in 2014.

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