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EIA Oil Supply Data Reveals a Bullish Raft of Indicators

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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 fifth straight fall in domestic oil stocks was accompanied by a decrease in gasoline inventories. However, the commodity pared back some of its gains after rumblings about the OPEC+ coalition boosted production from August.

On the New York Mercantile Exchange, WTI crude futures edged up 23 cents or 0.3%, to settle at $73.08 a barrel, its highest finish since October 2018.

Below we review the EIA's Weekly Petroleum Status Report for the week ending Jun 18.

Analyzing the Latest EIA Report

Crude Oil: The federal government’s EIA report revealed that crude inventories fell by 7.6 million barrels compared to expectations of a 6.3-million-barrel decline. An uptick in demand (or total products supplied) coupled with slightly lower production accounted for the larger-than-expected stockpile draw with the world’s biggest oil consumer. This puts total domestic stocks at 459.1 million barrels — 15.1% less than the year-ago figure and 6% 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 1.8 million barrels to 41.7 million barrels.

Meanwhile, the crude supply cover was down from 29.6 days in the previous week to 28.7 days. In the year-ago period, the supply cover was 39.9 days.

Let’s turn to the products now.

Gasoline: Gasoline supplies fell last week after rising for three weeks in a row. The 2.9-million-barrel drop is attributable to an increase in demand even as production grew. Analysts had forecast that gasoline inventories would to rise by 1.3 million barrels. At 240 million barrels, the current stock of the most widely used petroleum product is 6% less than the year-earlier level and 1% below the five-year average range.

Distillate: Distillate fuel supplies (including diesel and heating oil) rose for the third time in four weeks. The 1.8-million-barrel increase reflected a dip in demand. Meanwhile, the market looked for a supply gain of 1 million barrels. Current inventories — at 137.9 million barrels — are 21.1% below the year-ago level and 4% less than the five-year average.

Refinery Rates: Refinery utilization, at 92.2%, was down 0.4% from the prior week.

Wrapping Up

Oil prices settled slightly up on Wednesday, hitting the highest in 32 months as investors focus on the improving fundamentals in the energy market. Crude supplies declined to pre-lockdown levels, with U.S. commercial stockpiles down by nearly 9% since mid-March. Further, taking Cushing as an indicator, the oil market has already tightened considerably. Stocks fell to just 41.7 million barrels at the key storage hub last week, the lowest since March 2020. There was also an improvement in gasoline demand on the back of rebounding road and airline travel. This bodes well for oil prices in the second half of 2021. The report was also supportive in terms of U.S. producers scaling back operations.

With all the tailwinds, the Zacks Oil/Energy sector has outperformed the S&P 500 Index handsomely. It has gained 27.1% so far this year compared to the S&P 500’s 13.9% appreciation. Consequently, 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 ExxonMobil (XOM - Free Report) .

Marathon, carrying a Zacks Rank of #3 (Hold), is the top-performing energy stock with a gain of 103.30%, followed by Diamondback (89.90%), Devon (86.95%), Occidental (78.86%), EOG (71.85%), Hess (67.25%) and ExxonMobil (55.90%).

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

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