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U.S. Oil Stocks Fall for the Sixth Week, Fuel Supplies Swell

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U.S. oil prices moved higher on Jan 5 as a fall in domestic stocks outweighed the build-up in fuel inventories. A weekly report from the Energy Information Administration ("EIA") showed the sixth straight drawdown in crude supplies. Easing concerns about the potential Omicron-related fall in demand and the OPEC+ cartel’s decision to stick to its planned easing of production cuts in February also boosted the commodity.

On the New York Mercantile Exchange, WTI crude futures gained 86 cents, or 1.1%, to settle at $77.85 a barrel, its highest finish since Nov 24.

Coming back to the week ending Dec 31, let’s review the EIA's Weekly Petroleum Status Report.

Analyzing the Latest EIA Report

Crude Oil: The federal government’s EIA report revealed that crude inventories fell 2.1 million barrels compared to expectations of a 4.4 million-barrel decrease per the analysts surveyed by S&P Global Platts. A pullback in imports and continued strength in refinery demand accounted for the stockpile draw with the world’s biggest oil consumer even as lower exports and robust U.S. production limited the quantum of decline. Total domestic stocks now stand at 417.9 million barrels — 13.9% less than the year-ago figure and 8% 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) increased 2.6 million barrels to 37.3 million barrels.

Meanwhile, the crude supply cover was down from 26.7 days in the previous week to 26.5 days. In the year-ago period, the supply cover was 34.2 days.

Let’s turn to the products now.

Gasoline: Gasoline supplies increased for the second time in three weeks. The 10.1-million-barrel jump was attributable to sharply lower demand and higher imports. Analysts had forecast that gasoline inventories would rise by 1.9 million barrels. At 232.8 million barrels, the current stock of the most widely used petroleum product is 3.4% less than the year-earlier level and 4% below the five-year average range.

Distillate: Distillate fuel supplies (including diesel and heating oil) climbed last week after falling the week before. The 4.4 million-barrel increase primarily reflected demand weakness. Current inventories — at 126.8 million barrels — are 19.9% below the year-ago level and 16% lower than the five-year average.

Refinery Rates: Refinery utilization, at 89.8%, inched up 0.1% from the prior week.

Final Words

WTI settled at a six-week high yesterday, following another dip in crude inventories. Despite some downside risks associated with the Omicron variant-induced demand concerns, the Oil/Energy market has undoubtedly bounced back from 2020's pandemic-driven slump in consumption and prices.

Just recently, the four-week average for petroleum demand stood at an all-time high of 23.2 million barrels a day, indicating little reason for concern at this point. On the other hand, U.S. commercial stockpiles have been down nearly 17% since mid-March. Further, it appears that fears of a slowdown in oil demand recovery from the Omicron variant are starting to subside, with the strain likely to be short-lived and less deadly than expected. At the same time, the available vaccines might be effective in neutralizing it.  

The tightening demand-supply outlook prompted OPEC+ to boost output by the scheduled 400,000 barrels a day next month. The group appears to be reasonably confident about the trajectory of demand, which should be enough to absorb the additional crude.

To take advantage of oil’s solid demand backdrop, one might build a position by tapping into the below-mentioned Zacks Rank #1 (Strong Buy) oil companies.

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

Earthstone Energy (ESTE - Free Report) : Earthstone has a projected earnings growth rate of 112.2% for next year. The Zacks Consensus Estimate for ESTE’s 2022 earnings has been revised 49.3% upward over the past 60 days.

Earthstone beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 93.2%. ESTE shares have gained around 95.5% in a year.

Vermilion Energy (VET - Free Report) : Vermilion Energy is valued at around $2 billion. The Zacks Consensus Estimate for VET’s 2022 earnings has been revised 35.1% upward over the past 60 days.

Vermilion Energy has topped the Zacks Consensus Estimate by an average of 54.4% in the trailing four quarters, including a 100% beat in Q3.  VET shares have gained around 148.3% in a year.

Murphy USA (MUSA - Free Report) : Murphy USA is valued at around $5.1 billion. MUSA’s consensus estimate for 2022 has been revised 7.9% upward over the past 60 days.

MUSA beat the Zacks Consensus Estimate for earnings in three of the trailing four quarters, the average being 20.9%. Murphy USA has rallied around 56.6% in a year.

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Earthstone Energy, Inc. (ESTE) - free report >>