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EIA Oil Supply Data Headlines: Crude Stocks Drop, Fuel Up

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U.S. oil prices ended marginally lower yesterday, as investors looked past the Energy Information Administration’s ("EIA") second successive weekly crude stockpile draw and turned their attention to the rising gasoline and distillate supplies.

On the New York Mercantile Exchange, WTI crude futures edged down 2 cents or 0.03%, to settle at $68.81 a barrel.

Below we review the EIA's Weekly Petroleum Status Report for the week ending May 28.

Analyzing the Latest EIA Report

Crude Oil: The federal government’s EIA report revealed that crude inventories fell by 5.1 million barrels compared with expectations of a 3.3-million-barrel decline. An uptick in refinery demand coupled with lower production and imports accounted for the larger-than-expected stockpile draw with the world’s biggest oil consumer. This puts total domestic stocks at 479.3 million barrels — 10% less than the year-ago figure and 3% lower 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) were up 784,000 barrels to 45.5 million barrels.

Meanwhile, the crude supply cover was down from 32 days in the previous week to 31.4 days. In the year-ago period, the supply cover was 41.3 days.

Let’s turn to the products now.

Gasoline: Gasoline supplies increased for the first time in three weeks. The 1.5-million-barrel addition is attributable to a decrease in demand. Analysts had forecast gasoline inventories to fall by 1.1 million barrels. At 234 million barrels, the current stock of the most widely used petroleum product is 9.2% less than the year-earlier level and 3% below the five-year average range.

Distillate: Distillate fuel supplies (including diesel and heating oil) rose last week after falling for seven weeks in a row. The 3.7-million-barrel jump reflected a pullback in demand. Meanwhile, the market looked for a supply drop of 1.6 million barrels. Current inventories — at 132.8 million barrels — are 23.8% below the year-ago level and 8% less than the five-year average.

Refinery Rates: Refinery utilization, at 88.7%, was up 1.7% from the prior week.

Wrapping Up

Oil prices settled slightly lower on Thursday, following an unexpected build in gasoline and distillate inventories due to a decline in consumption. However, industry observers believe that the decrease in fuel demand is only transitory and is chiefly because of panic buying that occurred in early May’s five-day closing of Colonial Pipeline — a crucial piece of infrastructure that transports gasoline to the Southeast and East Coast. In fact, market fundamentals have only improved over the past few months, with oil supplies currently at a more than three-month low and gasoline consumption reaching its highest in over a year. Moreover, distillate stockpiles fell to their lowest level since April 2020 last week.

Of late, crude has found strong support at around $65 a barrel, with the U.S. benchmark hitting a multi-year high of nearly $69 earlier this week. Apart from successful vaccine rollouts and the calibrated production cuts by the OPEC+ cartel, the commodity’s upward momentum is being supported by easing coronavirus infections in the United States and Europe, the passage of the $1.9-trillion stimulus bill, and signs of robust demand in the world’s second-largest oil consumer, China. In particular, much of the bullish argument is simply a bet on stronger economic growth in the Western markets and the subsequent improvement in consumer spending.

The renewed confidence can be gauged from the fact that the Zacks Oil/Energy sector has gained 28.3% so far this year, outperforming the S&P 500 Index’s 12.8% appreciation. In fact, some of the major gainers of the S&P 500 this year include energy-related names like Marathon Oil (MRO - Free Report) , Devon Energy (DVN - Free Report) , Diamondback Energy (FANG - Free Report) , EOG Resources (EOG - Free Report) , Occidental Petroleum (OXY - Free Report) , Schlumberger (SLB - Free Report) and Hess Corporation (HES - Free Report) .

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Marathon, carrying a Zacks Rank of #2 (Buy), is the top-performing energy stock with a gain of 106.90%, followed by Devon (98.69%), Diamondback (78.76%), EOG (74.07%), Occidental (69.15%), Schlumberger (67.29%) and Hess (65.75%).

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

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