Back to top

Image: Bigstock

Oil Up for the Third Day: What Influenced the Price Action?

Read MoreHide Full Article

U.S. oil prices rose on Wednesday for the third straight session, underpinned by a weekly report from the Energy Information Administration ("EIA") that showed a stockpile draw. The third straight fall in domestic oil stocks was accompanied by a decrease in gasoline inventories.

On the New York Mercantile Exchange, WTI crude futures moved up 82 cents or 1.2%, to settle at $68.36 a barrel, its highest finish since Aug 13.

Below we review the EIA's Weekly Petroleum Status Report for the week ending Aug 20.

Analyzing the Latest EIA Report

Crude Oil: The federal government’s EIA report revealed that crude inventories fell by 3 million barrels compared to expectations of a 3.2-million-barrel decline per the analysts surveyed by S&P Global Platts. An uptick in refinery demand coupled with lower imports accounted for the stockpile draw with the world’s biggest oil consumer. This puts total domestic stocks at 432.6 million barrels — 14.8% less than the year-ago figure and 6% 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 70,000 barrels to 33.7 million barrels.

Meanwhile, the crude supply cover was down from 27.2 days in the previous week to 27 days. In the year-ago period, the supply cover was 34.7 days.

Let’s turn to the products now.

Gasoline: Gasoline supplies decreased for the fifth time in six weeks. The 2.2-million-barrel drop is attributable to an increase in consumption even as production and imports rose. Analysts had forecast that gasoline inventories would fall by 1.5 million barrels. At 225.9 million barrels, the current stock of the most widely used petroleum product is 5.6% less than the year-earlier level and 3% below the five-year average range.

Distillate: Distillate fuel supplies (including diesel and heating oil) climbed last week after falling the week before. The 645,000-barrel build reflected a pullback in demand. Meanwhile, the market looked for a supply drop of 400,000 barrels. Current inventories — at 138.5 million barrels — are 22.7% below the year-ago level and 8% lower than the five-year average.

Refinery Rates: Refinery utilization, at 92.4%, was up 0.2% from the prior week.

Wrapping Up

Oil prices settled higher yesterday, following a decline in crude and gasoline inventories due to stronger consumption. Despite some downside risk associated with the Delta variant-induced demand concerns, the Oil/Energy market is on the mend with a supportive macro backdrop and robust fundamentals. Widespread COVID-19 vaccine rollouts, the ongoing government stimulus and OPEC+ supply curtailments have contributed to this positive setup.

Crude supplies are now at their lowest levels since January 2020, with U.S. commercial stockpiles down nearly 14% since mid-March. There is also a marked improvement in gasoline demand on the back of rebounding road and airline travel. In fact, the last four-week average for petroleum demand is 21 million barrels a day, 13.4% above the year-ago levels and the highest since March last year. With all the tailwinds, the U.S. benchmark briefly hit a more than six-year high of $76.98 in July.

The improvement in crude prices helped energy companies report a stellar second quarter by posting blowout earnings. The likes of ExxonMobil (XOM - Free Report) , Chevron (CVX - Free Report) , Royal Dutch Shell (RDS.A - Free Report) and BP plc (BP - Free Report) came up with bottom lines that comfortably exceeded expectations. The environment of strong oil prices also helped the energy operators to generate significant “excess cash,” which they are using to boost investor returns through dividends and buybacks.

For example, the board of directors of Zacks Rank #1 (Strong Buy) BP approved a dividend hike of 4% to 5.46 cents per ordinary share. Before announcing results for the third quarter, the company plans to buy back $1.4 billion worth of shares by utilizing surplus cashflow that was generated through the January-to-June period.

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