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U.S. Crude Hits its Highest Price in 2 Months: Here's Why

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U.S. oil prices rallied to a more than two-month high, as news about progress in coronavirus vaccine candidates and a hefty decline in distillate supplies outweighed rising crude and gasoline inventories. On the New York Mercantile Exchange, WTI crude futures gained 39 cents or 0.9%, to settle at $41.82 a barrel — the highest since early September.

Below we review the EIA's Weekly Petroleum Status Report for the week ending Nov 13.

Analyzing the Latest EIA Report

Crude Oil: The federal government’s EIA report revealed that crude inventories rose by 769,000 barrels compared to expectations of a 100,000-barrel increase. A rebound in domestic production from the latest hurricane-led shut-ins accounted for the larger-than-expected stockpile build with the world’s biggest oil consumer even as refinery activity trended up. This puts total domestic stocks at 489.5 million barrels — 8.7% over the year-ago figure and 6% higher than the five-year average.

On a further bearish 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) increased 1.2 million barrels to 61.6 million barrels.

Meanwhile, the crude supply cover was down from 36.6 days in the previous week to 36.1 days. In the year-ago period, the supply cover was 28.1 days.

Let’s turn to the products now.

Gasoline: Gasoline supplies increased for the second time in three weeks. The 2.6-million-barrel build is attributable to weaker demand. Analysts had forecast a jump of 300,000 barrels. At 228 million barrels, the current stock of the most widely used petroleum product is around 3.3% higher than the year-earlier level and 4% above the five-year average range.

Distillate: Distillate fuel supplies (including diesel and heating oil) decreased for the ninth week in a row. The 5.2 million-barrel draw reflected an uptick in consumption. Meanwhile, the market looked for a supply decline of 1.8 million barrels. Current inventories — at 144.1 million barrels — are 24.5% higher than the year-ago level and 11% higher than the five-year average.

Refinery Rates: Refinery utilization was up 2.9% from the prior week to 77.4%.

Conclusion

Over the course of this week, oil prices have witnessed impressive gains after biotech company Moderna (MRNA - Free Report) reported that its coronavirus vaccine was 94.5% effective in trials. The Cambridge, MA-based firm said that analysis indicated a nearly 95% efficacy in preventing infections without any serious safety issue, based on a provisional data analysis. Moderna’s breakthrough announcement comes exactly a week after drugmakers Pfizer (PFE - Free Report) and BioNTech (BNTX - Free Report) announced successful data from their COVID-19 vaccine study.

The breakthroughs, which brighten the chances of emergency approval before the year-end, sent the commodity to a multi-month high. For oil in particular, the twin developments hold out hope toward 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.

Oil bulls are also supported by speculation, suggesting that the OPEC+ group of producers will keep holding back supply by 7.7 million barrels per day beyond the December-end timeline, instead of relaxing the cuts to 5.7 million barrels per day from January.

The string of catalysts pushed the Energy Select Sector SPDR — an assortment of the largest U.S. energy companies — up more than 17% over the past month to be at the top of the S&P sector standings.In fact, some of the top gainers of the S&P 500 during this period include energy-related names like Devon Energy (DVN - Free Report) , Baker Hughes Company (BKR - Free Report) , Diamondback Energy (FANG - Free Report) and Marathon Oil (MRO - Free Report) . Meanwhile, the only energy representative in the 30-stock Dow Jones industrial average, Chevron (CVX - Free Report) — carrying a Zacks Rank of #4 (Sell) — has also risen handsomely.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The chart below shows the price performance of the abovementioned energy stocks in the past month.

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