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Oil Names Surge on EIA Inventory Report, Demand Optimism

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U.S. oil prices finished at their highest levels in one-and-a-half months after a weekly report from the Energy Information Administration ("EIA") showed draws in crude and fuel stockpiles. The commodity was also boosted by the major international forecasters’ encouraging view on oil demand growth next year.

On the New York Mercantile Exchange, WTI crude futures gained $2.15 or 3.1%, to settle at $72.61 a barrel, its highest finish since Jul 30.

Below we review the EIA's Weekly Petroleum Status Report for the week ending Sep 10.

Analyzing the Latest EIA Report

Crude Oil: The federal government’s EIA report revealed that crude inventories fell by 6.4 million barrels compared to the expectations of a 3.5-million-barrel decline per the analysts surveyed by S&P Global Platts. An uptick in exports (from facilities unaffected by Hurricane Ida) primarily accounted for the stockpile draw with the world’s biggest oil consumer. The higher-than-expected drop was also supported by subdued production and imports— both related to the storm-led shut-ins in the Gulf of Mexico units. This puts total domestic stocks at 417.4 million barrels — 15.8% 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 1.1 million barrels to 35.3 million barrels.

Meanwhile, the crude supply cover was up from 27.2 days in the previous week to 27.5 days. In the year-ago period, the supply cover was 36.2 days.

Let’s turn to the products now.

Gasoline: Gasoline supplies decreased for the seventh time in nine weeks. The 1.9-million-barrel drop is attributable to the continued hurricane fallout on the Gulf Coast’s widespread refinery network. Analysts had forecast that gasoline inventories would fall by 2.2 million barrels. At 218.1 million barrels, the current stock of the most widely used petroleum product is 5.8% less than the year-earlier level and 4% below the five-year average range.

Distillate: Distillate fuel supplies (including diesel and heating oil) fell for the third week in a row. The 1.7-million-barrel drop reflected refineries still sidelined by Hurricane Ida. Meanwhile, the market looked for a supply decline of 2 million barrels. Current inventories — at 131.9 million barrels — are 26.4% below the year-ago level and 13% lower than the five-year average.

Refinery Rates: Refinery utilization, at 82.1%, inched up 0.2% from the prior week.

An Improving Macro Outlook

Oil prices surged yesterday following another dip in crude and fuel inventories. While analysts cited this week’s hefty supply declines as temporary due to the slow restoration of operations from the Hurricane Ida-led shut-ins in the Gulf of Mexico (GoM), there is no doubt that the overall 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 the OPEC+ supply curtailments have contributed to this positive setup.

Crude supplies are now at their lowest levels since September 2019, with U.S. commercial stockpiles down 17% since mid-March. There is also a marked improvement in gasoline demand on the back of rebounding road and airline travel. With all the tailwinds, the U.S. benchmark briefly hit a more than six-year high of $76.98 in July.

Energy Stocks Soar

Apart from the bullish government report, yesterday’s oil surge also reflected robust demand forecasts for 2022 by OPEC and the International Energy Agency (“IEA”) in their closely watched monthly reports. OPEC’s estimate was an upward revision of 900,000 barrels a day compared with last month’s report, while IEA upped consumption forecasts by 100,000 barrels per day.

The positive raft of indicators lifted the Energy Select Sector SPDR — an assortment of the largest U.S. energy companies — up 3.74% to be at the top of the S&P sector standings. Consequently, the biggest winners of the S&P 500 on Wednesday were all energy-related names like EOG Resources (EOG - Free Report) , Diamondback Energy (FANG - Free Report) , Marathon Oil (MRO - Free Report) , Devon Energy (DVN - Free Report) , APA Corporation (APA - Free Report) and Occidental Petroleum (OXY - Free Report) .

EOG, carrying a Zacks Rank of #3 (Hold), topped the S&P 500 list with a gain of 8.33%. Other notable energy movers include Diamondback Energy (7.80%), Marathon Oil (7.67%), Devon Energy (7.29%), APA (6.56%) and Occidental Petroleum (6.09%).

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