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This is Why Energy Stocks Suffered a Sharp Selloff Yesterday

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U.S. oil prices slid on Thursday, as rising inventories and a dramatic increase in COVID-19 cases outweighed a decline in fuel (gasoline and distillate) supplies. On the New York Mercantile Exchange, WTI crude futures lost 33 cents or 0.8%, to settle at $41.12 a barrel.

Analyzing the Latest EIA Report

Below we review the EIA's Weekly Petroleum Status Report for the week ending Nov 6.

Crude Oil: The federal government’s EIA report revealed that crude inventories rose by 4.3 million barrels compared to expectations of a 3 million-barrel decrease. The combination of a sizeable increase in imports and trended down refinery activity accounted for the surprise stockpile build with the world’s biggest oil consumer. This puts total domestic stocks at 488.7million barrels — 8.8% over the year-ago figure and 6% higher than the five-year average.

On a somewhat positive note, the latest report showed that supplies at the Cushing terminal (the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange) decreased 518,000 barrels to 60.4 million barrels.

Meanwhile, the crude supply cover was up from 36.2 days in the previous week to 36.6 days. In the year-ago period, the supply cover was 28.3 days.

Let’s turn to the products now.

Gasoline: Gasoline supplies decreased for the fourth time in six weeks. The 2.3-million-barrel draw is attributable to higher demand. Analysts had forecast a decline of 60,000 barrels. At 225.4 million barrels, the current stock of the most widely used petroleum product is around 2.9% higher than the year-earlier level and 3% above the five-year average range.

Distillate: Distillate fuel supplies (including diesel and heating oil) decreased for the eighth week in a row. The 5.4 million-barrel draw reflected an uptick in consumption. Meanwhile, the market looked for a supply decline of 2million barrels. Current inventories — at 149.3 million barrels — are 27.9% higher than the year-ago level and 15% higher than the five-year average.

Refinery Rates: Refinery utilization edged down 0.8% from the prior week to 74.5%.

Conclusion

Earlier this week, oil prices witnessed impressive gains after drugmakers Pfizer (PFE - Free Report) and BioNTech (BNTX - Free Report) announced successful data from their COVID-19 vaccine study. The breakthrough, which brightens chances of the treatment’s emergency approval before the year-end, sent the commodity to a two-month high.

For oil in particular, the development holds out hope of protection against the deadly pandemic that has crushed the commodity’s demand and caused a bloodbath for the energy-related stocks. A potential treatment is expected to revive economic and transport activity, leading to stronger crude demand.

The vaccine’s progress notwithstanding, the road to recovery remains long and uncertain amid concerns of soaring new coronavirus infections in many countries, and the reimposition of lockdowns severely hampering the fragile oil demand recovery. This has been validated by the recent monthly reports of energy watchdogs IEA and OPEC wherein they cut their oil usage forecasts.

On top of the demand issues, crude stockpiles moved higher as per the latest EIA release, which was enough to push the Energy Select Sector SPDR — an assortment of the largest U.S. energy companies — down more than 3% on Thursday. Consequently, some of the biggest casualties of the S&P 500 included energy-related names like Phillips 66 (PSX - Free Report) , Marathon Petroleum (MPC - Free Report) , Hess (HES - Free Report) , Valero Energy (VLO - Free Report) and Occidental Petroleum (OXY - Free Report) .

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