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Bullish EIA Data Lends Additional Buoyancy to the Oil Market

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U.S. oil prices finished at their highest levels in seven years after a weekly report from the Energy Information Administration ("EIA") showed draws in crude and fuel stockpiles. On the New York Mercantile Exchange, WTI crude futures gained 91 cents or 1.1%, to settle at $83.87 a barrel, its highest finish since Oct 13, 2014.

Below we review the EIA's Weekly Petroleum Status Report for the week ending Oct 15.

Analyzing the Latest EIA Report

Crude Oil: The federal government’s EIA report revealed that crude inventories fell by 431,000 barrels compared to expectations of a 2-million-barrel increase per the analysts surveyed by S&P Global Platts. The combination of a surge in exports, lower imports and a pullback in production accounted for the surprise stockpile draw with the world’s biggest oil consumer even as refinery activity fell. This put total domestic stocks at 426.5 million barrels — 12.6% less than the year-ago figure and 6% 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 2.3 million barrels to a three-year low of 31.2 million barrels.

Meanwhile, the crude supply cover was up from 27.7 days in the previous week to 27.9 days. In the year-ago period, the supply cover was 36.1 days.

Let’s turn to the products now.

Gasoline: Gasoline supplies decreased for the second week in a row. The 5.4-million-barrel drop is attributable to strong demand. Analysts had forecast that gasoline inventories would fall by 2.2 million barrels. At 217.7 million barrels, the current stock of the most widely used petroleum product is 4.1% 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 third week in succession. The 3.9-million-barrel decrease reflected higher demand and lower production. Meanwhile, the market looked for a supply decline of 2.4 million barrels. Current inventories — at 125.4 million barrels — are 22% below the year-ago level and 10% lower than the five-year average.

Refinery Rates: Refinery utilization, at 84.7%, moved down 2% from the prior week.

Final Words

Oil prices climbed yesterday, with the U.S. benchmark again marking its highest level since 2014 in the wake of a dip in crude, gasoline and distillate inventories. What is clear is 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+ cartel’s calibrated production policy have contributed to this positive setup.

Crude supplies recently fell to their lowest levels since October 2018, with U.S. commercial stockpiles down more than 15% since mid-March. Taking Cushing as an indicator, the oil market has already tightened considerably. Stocks fell under 32 million barrels at the key storage hub last week, the lowest since October 2018. There is also a marked improvement in fuel demand on the back of rebounding road and airline travel. In fact, strong demand for gasoline has pushed inventories to the lowest level in nearly two years.

Quite expectedly, the Energy Select Sector SPDR — an assortment of the largest U.S. companies thronging the space — has risen 59.5% year to date against a 22.8% gain for the broader S&P 500 benchmark. As far as companies within the index are concerned, oil stocks like Devon Energy (DVN - Free Report) , Marathon Oil (MRO - Free Report) , Diamondback Energy (FANG - Free Report) , APA Corporation (APA - Free Report) , Occidental Petroleum (OXY - Free Report) , ConocoPhillips (COP - Free Report) and EOG Resources (EOG - Free Report) have done well so far this year.

Devon Energy, carrying a Zacks Rank #2 (Buy), is the top-performing energy stock with a gain of 166.4%. Marathon, Diamondback, APA, Occidental, ConocoPhillips and EOG have also enjoyed outsized gains of 147.2%, 129.7%, 93.5%, 92.7%, 90.1% and 89.1%, respectively.

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

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