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Bullish EIA Data Lends Additional Buoyancy to Gasoline Prices

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U.S. gasoline prices appear on track for further records as investors remain concerned about signs of tight supplies, with the summer driving season officially underway. The Energy Information Administration’s ("EIA") latest report showed another drawdown in stockpiles — the tenth in as many weeks — pointing to the strained market fundamentals.

Gasoline prices in the United States have repeatedly soared to new record highs. Motorists in more than 10 states are currently paying in excess of $5 for a gallon of regular gas at the petrol pump.

Before going into the other factors, let's dig deep into the EIA's Weekly Petroleum Status Report for the week ending Jun 3.

Analyzing the Latest EIA Report

Crude Oil: The federal government’s EIA report revealed that crude inventories rose 2 million barrels compared to analyst expectations of a 1.9 million-barrel decrease. A sharp drop in exports primarily accounted for the surprise stockpile build with the world’s biggest oil consumer even as refinery demand remains robust. Total domestic stocks now stand at 416.8 million barrels — 12.1% less than the year-ago figure and 15% lower than the five-year average.

However, on a slightly 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 1.6 million barrels to 23.4 million barrels.

Meanwhile, the crude supply cover was down from 25.9 days in the previous week to 25.8 days. In the year-ago period, the supply cover was 30.6 days.

Let’s turn to the products now.

Gasoline: Gasoline supplies decreased for the tenth week in succession. The 812,000-barrel drop was attributable to continued strength in demand, as the summer driving season begins. Analysts had forecast that gasoline inventories would rise by 300,000 barrels. At 218.2 million barrels, the current stock of the most widely used petroleum product is 9.5% less than the year-earlier level and 10% below the five-year average range.

Distillate: Distillate fuel supplies (including diesel and heating oil) rose for the third time in four weeks. The 2.6 million-barrel climb primarily reflected a pullback in demand and higher production. Meanwhile, the market looked for a supply build of 800,000 barrels. Despite the recent supply additions, current inventories — at 109 million barrels — are 20.6% below the year-ago level and 23% lower than the five-year average.

Refinery Rates: Refinery utilization, at 94.2%, rose 1.6% from the prior week.

Final Words

Oil prices continue to trade above $120, on expectations of growing fuel demand during the summer driving season in the United States. In the meantime, the national average for gasoline has gone up by 60 cents in just a month and is nearly $2 above the year-ago price. With millions of Americans on the move, the ‘pain at the pump’, or the trend of high gasoline prices, is expected to continue in the near-to-medium term.

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, the European Union recently followed the U.S. in blocking imports of Russian energy to protest Moscow’s invasion of Ukraine.

Even the fundamentals point to a tightening of the market. Per the latest government report, U.S. commercial stockpiles have been down more than 12% 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 62.6% year to date against a 15.7% 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) , Valero Energy (VLO - Free Report) and Marathon Oil (MRO - Free Report) .

Occidental Petroleum: OXY is the top-performing S&P 500 stock in 2022, with a gain of 124.8%. 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 30.4%.

OXY has a projected earnings growth rate of 306.3% for this year. The Zacks Consensus Estimate for Occidental Petroleum’s 2022 earnings has been revised 30.2% upward over the past 60 days.

Valero Energy: This stock was the second-best performer in the S&P 500 Index, with shares having appreciated 90.9% so far in 2022. VLO, carrying a Zacks Rank of #1 (Strong Buy), has a projected earnings growth rate of 493.6% for this year.

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

The Zacks Consensus Estimate for Valero Energy’s 2022 earnings has been revised 87.2% upward over the past 60 days. VLO beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 84.3%.

Marathon Oil: Marathon stock has jumped 90.3% 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 $22.6 billion. MRO has a projected earnings growth rate of 228.7% for this year.


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