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Oil Jumps on Another Big Inventory Draw, OPEC Action

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The U.S. Energy Department's inventory release showed that crude stockpiles declined for the fourth straight week, continuing to drag down the overall surplus.

The bullish sentiment on the back of drawdown in U.S. crude stocks was further supported by the OPEC oil cartel’s surprise decision to curb production for the first time since 2008.

As a result, West Texas Intermediate (WTI) crude futures surged 5.3% (or $2.38) to settle at $47.05 per barrel Wednesday – the highest in about 3 weeks.

This also prompted investors to increase their exposure to oil and related support plays. Market heavyweights like Marathon Oil Corp. (MRO - Free Report) , Chevron Corp. (CVX - Free Report) , Exxon Mobil Corp. (XOM - Free Report) , Apache Corp. (APA - Free Report) , Occidental Petroleum Corp. (OXY - Free Report) and ConocoPhillips (COP - Free Report) all experienced gains in yesterday’s trading.

However, each of these firms has a Zacks Rank #3 (Hold), which does not make them screaming buys. In case you are looking for energy names for your portfolio, one could opt for Evolution Petroleum Corp. (EPM - Free Report) . It has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Analysis of the EIA Data

Crude Oil: The federal government’s EIA report revealed that crude inventories fell by 1.88 million barrels for the week ending Sep 23, 2016, following a decline of 6.2 million barrels in the previous week.

The analysts surveyed by S&P Global Platts – the leading independent commodities and energy data provider – had expected crude stocks to go up some 3.2 million barrels. A big drop in imports led to the surprise stockpile draw with the world's biggest oil consumer.

Following the fourth straight inventory reduction, the year-over-year storage surplus has narrowed down considerably. However, U.S. still remains awash with excess oil. At 502.72 million barrels, current crude supplies are up 10% from the year-ago period and are at the highest level during this time of the year.

In particular, crude inventories at the Cushing terminal in Oklahoma – the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange – was down 631,000 barrels from previous week’s level to 62.08 million barrels.

The crude supply cover – at 30.2 days – remained unchanged from the previous week. In the year-ago period, the supply cover was 28.3 days.

Oils-Energy Sector Price Index


Oils-Energy Sector Price Index

Gasoline: Supplies of gasoline were up for the second time in 3 weeks as imports rose and demand weakened. The 2.03 million barrels build – compared to analysts’ expectations for unchanged supply level – took gasoline stockpiles up to 227.18 million barrels. Following last week’s increase, the existing stock of the most widely used petroleum product is 2% higher than the year-earlier level and is above the upper half of the average range.

Distillate: Distillate fuel supplies (including diesel and heating oil) went down by 1.92 million barrels last week, higher than the analysts’ polled number for a 700,000 barrels drop in inventory level. The decrease in distillate fuel stocks – for the first time in 7 weeks – could be attributed to a fall in production, assisted by higher demand. At 163.08 million barrels, distillate supplies are 8% higher than the year-ago level and are over the upper half of the average range for this time of the year.

Refinery Rates: Refinery utilization was down by 1.9% from the prior week to 90.1%.

About the Weekly Petroleum Status Report

The Energy Information Administration (EIA) Petroleum Status Report, containing data of the previous week ending Friday, outlines information regarding the weekly change in petroleum inventories held and produced by the U.S., both locally and abroad.

The report provides an overview of the level of reserves and their movements, thereby helping investors understand the demand/supply dynamics of petroleum products. It is an indicator of current oil prices and volatility that affect the businesses of the companies engaged in the oil and refining industry.

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