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What to Make of the EIA's Latest Crude Inventory Report?

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The U.S. Energy Department's inventory release showed that crude stocks recorded a weekly decrease that was much smaller than anticipated. The second straight fall in domestic oil stocks was accompanied by a decrease in distillate inventories. Additionally, the agency said that gasoline stockpiles increased though oil supplies at the Cushing, OK, delivery hub dipped.

Below we review the EIA's Weekly Petroleum Status Report for the week ending May 7.

Analyzing the Latest EIA Report

Crude Oil: The federal government’s EIA report revealed that crude inventories edged lower by 427,000 barrels compared with expectations of a 4.1-million-barrel decline. The magnitude of stockpile draw with the world’s biggest oil consumer was less than anticipated as exports plunged to their lowest level since October 2018. This puts total domestic stocks at 484.7 million barrels — 8.8% less than the year-ago figure and 2% lower than the five-year average.

The latest report also showed that supplies at the Cushing terminal (the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange) were down 421,000 barrels to 45.9 million barrels.

Meanwhile, the crude supply cover — at 32.3 days — remained unchanged from the previous week. In the year-ago period, the supply cover was 42 days.

Let’s turn to the products now.

Gasoline: Gasoline supplies increased for the sixth week in a row. The roughly 400,000-barrel build is attributable to slightly lower demand. Analysts had forecast gasoline inventories to rise by 700,000 barrels. At 236.2 million barrels, the current stock of the most widely used petroleum product is 6.6% less than the year-earlier level and 1% below the five-year average range.

Distillate: Distillate fuel supplies (including diesel and heating oil) decreased by 1.7 million barrels to fall for the fifth consecutive week. Meanwhile, the market looked for a supply drop of 2 million barrels. Current inventories — at 134.4 million barrels — are at their lowest since April 2020, 13.3% below the year-ago level and 3% less than the five-year average.

Refinery Rates: Refinery utilization, at 85%, was down 0.4% from the prior week.

Wrapping Up

Despite worries over record-high COVID-19 cases in densely populated countries like India hampering energy usage, the commodity has spent much of the past few months trading higher on continued vaccine-related developments and their successful deployment around the world, offering hope of an earlier-than-expected pickup in demand. The OPEC+ cartel’s calibrated production policy has also driven up oil. In its recent meeting, member countries of the OPEC+ group — a coalition between OPEC countries under kingpin Saudi Arabia and non-members led by Russia — continued with their gradual loosening of the output cuts, reflecting confidence in the fuel’s usage. Easing coronavirus infections in the United States, signs of robust demand in the world’s second-largest oil consumer, China, and the passage of the $1.9-trillion stimulus bill are the other positives in the oil story.

The renewed confidence can be gauged from the fact that the Zacks Oil/Energy sector has handsomely outperformed the S&P 500 Index so far this year. In fact, some of the major gainers of the S&P 500 in 2021 include energy-related names like Marathon Oil (MRO - Free Report) , Diamondback Energy (FANG - Free Report) , EOG Resources (EOG - Free Report) , Devon Energy (DVN - Free Report) , Hess Corporation (HES - Free Report) , Apache Corporation (APA - Free Report) and Schlumberger (SLB - Free Report) .

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