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U.S. Oil Prices Reach 2-Month High on Optimism Around Demand

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U.S. crude prices appear on track for the fifth consecutive weekly rise as investors remain concerned about signs of tight gasoline supplies ahead of this summer driving season. The Energy Information Administration’s ("EIA") latest report showed another drawdown in stockpiles, pointing to the strained market fundamentals.

On the New York Mercantile Exchange, WTI crude futures increased 3.4% to settle at $114.09 a barrel after climbing 1.3% on Wednesday.

Before going into the other factors, let's dig deep into the EIA's Weekly Petroleum Status Report for the week ending May 20.

Analyzing the Latest EIA Report

Crude Oil: The federal government’s EIA report revealed that crude inventories fell 1 million barrels compared to analyst expectations of a 600,000-barrel decrease. The combination of a sharp rise in exports and strong refinery demand accounted for the larger-than-expected stockpile draw with the world’s biggest oil consumer even as U.S. output remains robust. Total domestic stocks now stand at 419.8 million barrels — 13.3% less than the year-ago figure and 14% lower than the five-year average.

On a further bullish 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) decreased 1.1 million barrels to 24.8 million barrels.

Meanwhile, the crude supply cover was down from 26.8 days in the previous week to 26.5 days. In the year-ago period, the supply cover was 32 days.

Let’s turn to the products now.

Gasoline: Gasoline supplies decreased for the eighth week in succession. The 482,000-barrel drop was attributable to continued strength in demand even as supplies play catch up. Analysts had forecast that gasoline inventories would fall by 1.2 million barrels. At 219.7 million barrels, the current stock of the most widely used petroleum product is 5.5% less than the year-earlier level and 8% below the five-year average range.

Distillate: Distillate fuel supplies (including diesel and heating oil) logged the second weekly rise in a row. The 1.7 million-barrel climb primarily reflected a jump in production. Current inventories — at 106.9 million barrels — are 17.2% below the year-ago level and 21% lower than the five-year average.

Refinery Rates: Refinery utilization, at 93.2%, rose 1.4% from the prior week.

Final Words

Oil prices ended above $114 yesterday, primarily reflecting an anticipated pick-up in fuel consumption during and post Memorial Day weekend, which marks the start of the summer driving season.

There are also concerns about supplies from Russia, which is one of the world's largest producers of the commodity. Raising the prospect of a dramatic fall in crude flows, speculation has it that the European Union could shortly follow the United States in blocking imports of Russian energy to protest Moscow’s invasion of Ukraine.

While there are jitters over soaring inflation, stuttering economic growth and the coronavirus lockdowns in China (the world’s second-biggest oil consumer), these have been more than offset by the prospect of robust motor fuels’ consumption in the summer driving season that could see a release of built-up demand.

As it is, the Oil/Energy market continues to enjoy support from geopolitical uncertainty amid Russia’s military operations in Ukraine. In March, crude prices surged to multi-year highs of $130-a-barrel.

Even the fundamentals point to a tightening of the market. Per the latest government report, U.S. commercial stockpiles have been down more than 13% in a year, prompted by a demand spike owing to the reopening of economies and a rebound in activity.

As a matter of fact, the Energy Select Sector SPDR — an assortment of the largest U.S. companies thronging the space — has risen 56.7% year to date against a 14.9% loss for the broader S&P 500 benchmark.

Consequently, the top three gainers of the S&P 500 this year are all energy-related names: Occidental Petroleum (OXY - Free Report) , Coterra Energy (CTRA - Free Report) and Marathon Oil (MRO - Free Report) .

Occidental Petroleum: OXY, carrying a Zacks Rank of #1 (Strong Buy), is the top-performing S&P 500 stock in 2022, with a gain of 136.8%. Occidental Petroleum’s expected EPS growth rate for three to five years is currently 32.3%, which compares favorably with the industry's growth rate of 21.9%.

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

OXY has a projected earnings growth rate of 289.4% for this year. The Zacks Consensus Estimate for Occidental Petroleum’s 2022 earnings has been revised 88.4% upward over the past 60 days.

Corterra Energy: This stock was the second-best performer in the S&P 500 Index, with shares having appreciated 88.2% so far in 2022. CTRA has a projected earnings growth rate of 81.8% for this year.

The Zacks Consensus Estimate for Corterra Energy’s 2022 earnings has been revised 38.2% upward over the past 60 days. CTRA’s expected EPS growth rate for three to five years is currently 55%, which compares favorably with the industry's growth rate of 27%.

Marathon Oil: Marathon stock has jumped 81.2% year to date. MRO beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 23%.

Marathon is valued at around $20.5 billion. MRO has a projected earnings growth rate of 214.7% for this year.


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