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Here's Why Oil Jumped 2.5% and Drove Energy Stocks Higher

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U.S. oil prices rose on Sep 22 after a weekly report from the Energy Information Administration ("EIA") showed draws in crude and distillate stockpiles. On the New York Mercantile Exchange, WTI crude futures gained $1.74 or 2.5%, to settle at $72.23 a barrel.

Below we review the EIA's Weekly Petroleum Status Report for the week ending Sep 17.

Analyzing the Latest EIA Report

Crude Oil: The federal government’s EIA report revealed that crude inventories fell by 3.5 million barrels compared to the expectations of a 3.8-million-barrel decline per the analysts surveyed by S&P Global Platts. The combination of a sizeable increase in exports and a ramp-up in refinery activity accounted for the stockpile draw with the world’s biggest oil consumer even as domestic production recovered from the storm-led shut-ins in the Gulf of Mexico. This puts total domestic stocks at 414 million barrels — 16.3% less than the year-ago figure and 8% 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 1.5 million barrels to 33.8 million barrels.

Meanwhile, the crude supply cover was up from 27.5 days in the previous week to 27.6 days. In the year-ago period, the supply cover was 37 days.

Let’s turn to the products now.

Gasoline: Gasoline supplies increased for the first time in three weeks. The 3.5-million-barrel addition is attributable to seasonal trends as well as the hurricane fallout. Analysts had forecast that gasoline inventories would fall by 900,000 barrels. At 221.6 million barrels, the current stock of the most widely used petroleum product is 2.6% less than the year-earlier level and 3% below the five-year average range.

Distillate: Distillate fuel supplies (including diesel and heating oil) fell for the fourth week in a row. The 2.6-million-barrel drop reflected the restart of refineries that were sidelined by Hurricane Ida. Meanwhile, the market looked for a supply decline of 1.4 million barrels. Current inventories — at 129.3 million barrels — are 26.5% below the year-ago level and 14% lower than the five-year average.

Refinery Rates: Refinery utilization, at 87.5%, moved up 5.4% from the prior week due to the gradual restart of units in the U.S. Gulf that were shut by Hurricane Ida.

Final Words

Oil prices settled higher yesterday following another dip in crude and distillate inventories due to stronger consumption. Despite some disappointment with the latest gasoline number, 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 October 2018, with U.S. commercial stockpiles down some 18% since mid-March. There is also a marked improvement in fuel 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.

The bullish EIA report lifted the Energy Select Sector SPDR — an assortment of the largest U.S. energy companies — up 3.08% to be at the top of the S&P sector standings on Wednesday. Consequently, the biggest winners of the S&P 500 on Wednesday were mostly energy-related names like APA Corporation (APA - Free Report) , Devon Energy (DVN - Free Report) , Diamondback Energy (FANG - Free Report) , Marathon Oil (MRO - Free Report) , Hess Corporation (HES - Free Report) , Occidental Petroleum (OXY - Free Report) and ConocoPhillips (COP - Free Report) .

APA, carrying a Zacks Rank of #3 (Hold), topped the S&P 500 list with a gain of 7.19%. Other notable energy movers include Devon Energy (6.84%), Diamondback Energy (5.42%), Marathon Oil (5.35%), Hess (5.21%), Occidental Petroleum (5.19%) and ConocoPhillips (4.94%).

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