The U.S. Energy Department's weekly inventory release showed that crude stockpiles logged a surprise increase, as imports climbed and refiners scaled down their utilization rates. The report further revealed that within the ‘refined products’ category, gasoline stocks rose, while distillate supplies were down from the week-ago level.
The bearish crude data from the U.S. government, together with uncertainty looming over Federal Reserve’s decision to tape the bond purchase program, pulled down the commodity below $103 a barrel.
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 climbed 2.64 million barrels for the week ending Sep 20, 2013, following a decrease of 4.37 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 1.5 million barrels. A sharp uptick in the level of imports and drop in refinery utilization rates led to the surprise stockpile build-up with the world's biggest oil consumer even as domestic production fell from their highest level since 1989.
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 – were down 412,000 barrels from the previous week’s level to 32.85 million barrels. Stocks are currently at their lowest since Feb last year and 36.7% under the all-time high of 51.86 million barrels reached in Jan.
Despite the first inventory increase in 4 weeks, at 358.26 million barrels, current crude supplies are down 1.9% from the year-ago period, though it is still close to the upper limit of the average for this time of the year. The crude supply cover was up from 22.3 days in the previous week to 22.6 days. In the year-ago period, the supply cover was 25.0 days.
Gasoline: Supplies of gasoline were up for the second time in 3 weeks, as domestic consumption weakened. This was partially offset by lower imports and production.
The paltry 217,000 barrels gain – contrary to analysts’ projections for a 1.5 million-barrels decrease in supply level – took gasoline stockpiles up to 216.24 million barrels. Following this build, the existing inventory level of the most widely used petroleum product is 10.4% 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) were down 234,000 barrels last week, significantly lower than analysts’ expectations for a 1 million barrels fall in inventory level. The decrease in distillate fuel stocks – the second in as many weeks – could be attributed to lower production, somewhat negated by weak demand and higher imports.
At 130.86 million barrels, distillate supplies are 2.4% 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 was down 2.2% from the prior week to 90.3%.
Stocks to Consider
Despite concerns, with spot crude price staying strong – at around $103 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 - Analyst Report) and Chevron Corp. (CVX - Analyst 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 Matador Resources Co. (MTDR - Snapshot Report) – a small-cap, undervalued E&P player – as a good buying opportunity. Dallas TX-based Matador Resources, sporting a Zacks Rank #1 (Strong Buy), with current focus on the high-return Eagle Ford shale formation in South Texas, is expected to witness earnings growth of an astounding 394% in 2013.