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Oil Moves Higher on Another Significant Stockpile Drawdown

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U.S. oil prices finished higher after a weekly report from the Energy Information Administration ("EIA") showed another big stockpile draw. The seventh straight fall in domestic oil stocks was accompanied by a decrease in gasoline inventories. However, the commodity pared back some of its gains on uncertainties stemming from OPEC+’s stalled meeting — one that has been held up due to differences between the United Arab Emirates and Saudi Arabia.

On the New York Mercantile Exchange, WTI crude futures moved up 74 cents or 1%, to settle at $72.94 a barrel.

Below we review the EIA's Weekly Petroleum Status Report for the week ending Jul 2.

Analyzing the Latest EIA Report

Crude Oil: The federal government’s EIA report revealed that crude inventories fell by 6.9 million barrels compared to expectations of a 6.2-million-barrel decline per the analysts surveyed by S&P Global Platts. An uptick in demand (or total products supplied) coupled with lower imports accounted for the larger-than-expected stockpile draw with the world’s biggest oil consumer. This puts total domestic stocks at 445.5 million barrels — 17.4% less than the year-ago figure and 7% 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 614,000 barrels at 39.6 million barrels.

Meanwhile, the crude supply cover was down from 28 days in the previous week to 27.5 days. In the year-ago period, the supply cover was 38.6 days.

Let’s turn to the products now.

Gasoline: Gasoline supplies fell for the second time in three weeks. The 6.1-million-barrel drop is attributable to an increase in demand even as production grew. Analysts had forecast that gasoline inventories would fall by 1.7 million barrels. At 235.5 million barrels, the current stock of the most widely used petroleum product is 6.4% less than the year-earlier level and 2% below the five-year average range.

Distillate: Distillate fuel supplies (including diesel and heating oil) increased by 1.6 million barrels, reflecting a dip in demand. Meanwhile, the market looked for a supply gain of 1.4 million barrels. Despite the build, current inventories — at 138.7 million barrels — are 21.8% below the year-ago level and 6% less than the five-year average.

Refinery Rates: Refinery utilization, at 92.2%, was down 0.7% from the prior week.

Wrapping Up

While the OPEC+ fiasco has opened up many questions about oil’s future path, the oil traders remain highly bullish on the commodity as of now. Prices settled up on Thursday, as investors focus on the improving fundamentals in the energy market. Crude supplies declined to the pre-lockdown levels, with U.S. commercial stockpiles down more than 11% since mid-March. Taking Cushing as an indicator, the oil market has already tightened considerably. Stocks fell under 40 million barrels at the key storage hub last week, the lowest since March 2020. There also marked 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.

With all the tailwinds, the Zacks Oil/Energy sector has outperformed the S&P 500 Index handsomely. It has gained 23.3% so far this year compared to the S&P 500’s 16.8% appreciation. Consequently, five out of the top-10 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) and EOG Resources (EOG - Free Report) .

Marathon, carrying a Zacks Rank of #2 (Buy), is the top-performing energy stock with a gain of 94.15%, followed by Diamondback (82.21%), Devon (78.35%), Occidental (71.35%) and EOG (60.20%).

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