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U.S. Oil Prices Drop on Rising Gasoline, Distillate Supplies

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U.S. oil prices moved down on Dec 7 after government data showed large weekly builds in gasoline and distillate supplies. On the New York Mercantile Exchange, WTI crude futures fell $2.24 (or 3%) to settle at $72.01 a barrel yesterday.

Despite this, the market has been kind to oil in 2022, with commodity trading considerably higher year to date and hitting $130 for the first time since 2008. Crude-related stocks like Occidental Petroleum (OXY - Free Report) , Hess Corporation (HES - Free Report) and Marathon Petroleum (MPC - Free Report) .

Before going into the overall macro environment for oil, let's dig deep into the Energy Information Administration’s ("EIA") Weekly Petroleum Status Report for the holiday-shortened week ending Nov 25.

Analyzing the Latest EIA Report

Crude Oil: The federal government’s EIA report revealed that crude inventories fell 5.2 million barrels compared to expectations of a 2.6 million-barrel decrease per the analysts surveyed by S&P Global Commodity Insights. The combination of lower imports and continued strength in refinery demand accounted for the bigger-than-expected stockpile draw with the world’s biggest oil consumer even as domestic production climbed to the highest since August.

Total domestic stocks now stand at 413.9 million barrels — 4.4% less than the year-ago figure and 9% 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) fell 373,000 barrels to 23.9 million barrels.

Meanwhile, the crude supply cover decreased from 25.7 days in the previous week to 25.2 days. In the year-ago period, the supply cover was 27.7 days.

Let’s turn to the products now.

Gasoline: Gasoline supplies increased for the fourth time in as many weeks. The 5.3 million-barrel rise was primarily attributable to lower exports. Analysts had forecast that gasoline inventories would rise 2.9 million barrels. At 219.1 million barrels, the current stock of the most widely used petroleum product is essentially in line with the year-earlier level, while it is 3% below the five-year average range.

Distillate: Distillate fuel supplies (including diesel and heating oil) also increased for the fourth week in succession. The 6.2 million-barrel gain reflected higher production and a fall in demand. Meanwhile, the market looked for a supply build of some 1.9 million barrels. Despite last week’s addition, current inventories — at 118.8 million barrels — are 6.2% below the year-ago level and 9% lower than the five-year average.

Refinery Rates: Refinery utilization, at a more than three-year high of 95.5%, rose 0.3% from the prior week.

Final Word

Even as fears revolving around high inflation and slowing growth somewhat cloud the outlook for Oil/Energy, it has remained the best S&P 500 sector this year. The space has generated a total return of more than 53% in 2022 against the S&P 500’s loss of around 17.5%. Apart from a positive fundamental picture, the sector is enjoying support from geopolitical uncertainty amid Russia’s military operations in Ukraine. In March, crude prices surged to multi-year highs of $130 on concerns about supplies from Russia, which is one of the world's largest producers of the commodity.

While oil has pulled back from those lofty levels, with the conflict showing no signs of a quick resolution, the risk of dwindling inventory and the influential oil exporters’ group OPEC sticking to a conservative production profile means that the commodity has got enough reasons to stay elevated in the near-to-medium term.

Consequently, three of the top four gainers of the S&P 500 this year are all energy-related names: Occidental Petroleum, Hess Corporation and Marathon Petroleum.

Occidental Petroleum: OXY is the top-performing S&P 500 stock in 2022, with a gain of 120.6%. Occidental Petroleum beat the Zacks Consensus Estimate for earnings in three of the last four quarters. It has a trailing four-quarter earnings surprise of 12.7%, on average.

OXY has a projected earnings growth rate of 282% for this year. Occidental Petroleum is valued at around $58.3 billion.

Hess Corporation: Hess shares have appreciated 82.1% so far in 2022. HES has a projected earnings growth rate of 229.7% for this year.

Hess, with a market capitalization of $41.8 billion, enjoys a Growth Score of A. HES beat the Zacks Consensus Estimate for earnings in three of the trailing four quarters, the average being 8.1%.

Marathon Petroleum: This stock is among the best performers on the S&P 500 Index, with shares having appreciated 70.3% in 2022. MPC, carrying a Zacks Rank #2 (Buy), has a projected earnings growth rate of 940.8% for this year.

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

Marathon Petroleum beat the Zacks Consensus Estimate for earnings in each of the last four quarters. MPC has a trailing four-quarter earnings surprise of 60.1%, on average.

In-Depth Zacks Research for the Tickers Above

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Hess Corporation (HES) - free report >>

Occidental Petroleum Corporation (OXY) - free report >>

Marathon Petroleum Corporation (MPC) - free report >>

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