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U.S. Crude Hits Highest Price in 11 Months: Here's Why

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U.S. oil prices finished at their highest levels in 11 months after a weekly report from the Energy Information Administration ("EIA") showed a big stockpile draw that outweighed rising gasoline and distillate supplies. The decline in oil inventories was the fourth in as many weeks.

Prices had already topped $50 on Tuesday, boosted by OPEC-kingpin Saudi Arabia’s surprise production cut move. On the New York Mercantile Exchange, WTI crude futures gained 70 cents, or 1.4%, to settle at $50.63 a barrel yesterday, the highest closing since late February.

Below we review the EIA's Weekly Petroleum Status Report for the holiday-shortened week ending Jan 1.

Analyzing the Latest EIA Report

Crude Oil: The federal government’s EIA report revealed that crude inventories fell by 8 million barrels compared with expectations of a 4.4-million-barrel decrease. Higher exports and refinery activity primarily accounted for the massive stockpile draw with the world’s biggest oil consumer. This puts total domestic stocks at 485.5 million barrels — 12.6% more than the year-ago figure and 9% higher than the five-year average.

On a somewhat 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 792,000 barrels to 59.2 million barrels.

Meanwhile, the crude supply cover was down from 34.7 days in the previous week to 34.2 days. In the year-ago period, the supply cover was 25.5 days.

Let’s turn to the products now.

Gasoline: Gasoline supplies increased for the first time in three weeks. The 4.5-million-barrel build is attributable to a decrease in consumption, which fell by 687,000 barrels per day during the week under review. At 241.1 million barrels, the current stock of the most widely used petroleum product is 4.2% lower than the year-earlier level but remains at the five-year average range.

Distillate: Distillate fuel supplies (including diesel and heating oil) rose for the fifth time in six weeks. The 6.4-million-barrel build reflected a slide in demand. Current inventories — at 158.4 million barrels — are 13.9% higher than the year-ago level and 4% more than the five-year average.

Refinery Rates: Refinery utilization was up 1.3% from the prior week to 80.7%.

Wrap Up

Oil has been rallying for the past few months on continued vaccine-related developments that offer hope for an earlier-than-expected pickup in the commodity’s demand. Crude has been driven up further by Riyadh’s surprise pledge to reduce oil output by 1 million barrels per day in February and March, thereby pumping for two months at levels below the production limit fixed under the OPEC+ agreement. The deeper cuts by the world’s largest oil exporter will also help to offset Russia and Kazakhstan’s combined addition of 75,000 barrels per day to the market, beginning in February and extending through March. Oil got another leg up yesterday after U.S. government data revealed a weekly drop in domestic crude inventories, which was much larger than expected.

The renewed enthusiasm can be gauged from the fact that the Zacks Oil/Energy sector has gained 31.5% in the past three months, handily outperforming the S&P 500 Index’s 9.8% appreciation.

 

In fact, some of the major gainers of the S&P 500 during this period include energy-related names like Occidental Petroleum (OXY - Free Report) , Diamondback Energy (FANG - Free Report) , Devon Energy (DVN - Free Report) , Marathon Oil (MRO - Free Report) and Apache (APA - Free Report) .Occidental was the top-performing stock with a gain of 94.6%, followed by Diamondback (91.1%), Devon (85.6%), Marathon (81.6%) and Apache (76%). Meanwhile, the only energy representative in the 30-stock Dow Jones industrial average, Chevron (CVX - Free Report) — carrying a Zacks Rank of #2 (Buy) — is up around 22%.

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

 

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