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U.S. Oil Extends Climb to 32-Month High on Demand Recovery

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U.S. oil prices finished at their highest levels in more than two and a half years after a weekly report from the Energy Information Administration ("EIA") showed a big stockpile draw. The fourth straight fall in domestic oil stocks was accompanied by a decrease in distillate inventories. However, the commodity pared back some of its gains after a stronger dollar made the fuel more expensive to the holders of other currencies. The greenback gathered steam when the Federal Reserve hinted at an interest rate hike.

On the New York Mercantile Exchange, WTI crude futures edged up 3 cents or 0.04%, to settle at $72.15 a barrel, its highest finish since October 2018.

Below we review the EIA's Weekly Petroleum Status Report for the week ending Jun 11.

Analyzing the Latest EIA Report

Crude Oil: The federal government’s EIA report revealed that crude inventories fell by 7.4 million barrels compared to expectations of a 4.2-million-barrel decline. An uptick in refinery demand coupled with sharply higher exports accounted for the larger-than-expected stockpile draw with the world’s biggest oil consumer. This puts total domestic stocks at 466.7 million barrels — 13.5% less than the year-ago figure and 5% lower than the five-year average.

On a further positive 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 down 2.2 million barrels to 43.6 million barrels.

Meanwhile, the crude supply cover was down from 30.6 days in the previous week to 29.6 days. In the year-ago period, the supply cover was 40.4 days.

Let’s turn to the products now.

Gasoline: Gasoline supplies increased for the third week in a row. The 2-million-barrel addition is attributable to an increase in production even as demand grew. Analysts had forecast that gasoline inventories would remain unchanged. At 243 million barrels, the current stock of the most widely used petroleum product is 5.4% less than the year-earlier level and hovering around the five-year average range.

Distillate: Distillate fuel supplies (including diesel and heating oil fell last week after rising for two weeks in a row. The 1-million-barrel decrease reflected a spike in demand. Meanwhile, the market looked for a supply gain of 200,000 barrels. Current inventories — at 136.2 million barrels — are 21.9% below the year-ago level and 6% less than the five-year average.

Refinery Rates: Refinery utilization, at 92.6%, was up 1.3% from the prior week.

Wrapping Up

Oil prices settled slightly up on Wednesday, hitting the highest in 32 months. Investors looked past challenges from the Fed’s tightening policy tilt and turned their attention to the improving fundamentals in the energy market. While oil supplies declined to a four-month low, refinery consumption was at the highest since January last year. Moreover, there was an improvement in gasoline and distillate demand that bodes well for oil prices in the second half of 2021.

The renewed confidence can be gauged from the fact that the Zacks Oil/Energy sector has gained 29.9% so far this year, outperforming the S&P 500 Index’s 13.9% 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) , Diamondback Energy (FANG - Free Report) , Devon Energy (DVN - Free Report) , Occidental Petroleum (OXY - Free Report) , EOG Resources (EOG - Free Report) , Hess Corporation (HES - Free Report) and Apache (APA - Free Report) .

Marathon, carrying a Zacks Rank of #3 (Hold), is the top-performing energy stock with a gain of 104.80%, followed by Diamondback (86.71%), Devon (86.70%), Occidental (76.43%), EOG (69.86%), Hess (67.68%) and Apache (59.06%).

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

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