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The U.S. Energy Department's inventory release showed that crude stockpiles recorded another massive drop on continued strong refinery runs. With oil supplies falling for the ninth week, investor sentiment has turned slightly positive on dissipating fears about a meltdown to sub-$40 levels. Analysts also believe that the trend, if sustained, could help tighten the market significantly.

But the positive effect from the hefty crude inventory draw was more than offset by the steadily rising domestic oil output that continues to be the biggest headwind for the market. At 9.53 million barrels a day, production is at the highest level in more than two years, thereby cancelling out cuts from OPEC and its allies. Surprise builds in refined product inventories – gasoline and distillate – added to the pessimism. 

As a result, West Texas Intermediate (WTI) crude futures shed 1% (or 48 cents) to $45.96 per barrel Wednesday.

In any case, the federal data was overshadowed by the impact of Hurricane Harvey-induced shutdowns at crude production and refining infrastructure.

Gasoline Prices Jump

The Gulf of Mexico (GoM), which bore the brunt of Hurricane Harvey, has major refining infrastructures. According to the EIA, more than 45% of domestic oil refining capacity and around 51% of the nation’s natural gas processing capacity are located in the GoM.

Exxon Mobil Corporation’s (XOM - Free Report) Baytown, Royal Dutch Shell plc’s (RDS.A - Free Report) Deer Park, Marathon Petroleum Corporation’s (MPC - Free Report) Galveston Bay, Phillips 66’s (PSX - Free Report) Sweeny Texas, Petrobras’ (PBR - Free Report) Pasadena, Valero Energy Corporation’s (VLO - Free Report) Corpus Christi are among the facilities affected. 

As a result, gasoline soared to a two-year high of $1.885 a gallon after Harvey caused weeks of disruptions at refineries in its path and shut units, creating supply shortages that will affect facilities for months.

Analysis of the EIA Data

Crude Oil: The federal government’s EIA report revealed that crude inventories slumped by 5.4 million barrels for the week ending Aug 25, following a decline of 3.3 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 down some 1.5 million barrels. Continued strength in refinery crude runs led to the bigger-than-expected stockpile draw with the world's biggest oil consumer even as domestic production rose to the highest level since July 2015.

Inventory reduction in 19 of the past 21 weeks has helped the U.S. crude market shift from year-over-year storage surplus to a deficit. At 457.8 million barrels, current crude supplies are at their lowest since January 2016 and are in the middle of the average range during this time of the year.

However, stocks at the Cushing terminal in Oklahoma – the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange – was up by 689,000 barrels to 57.2 million barrels.

The crude supply cover was down from 26.5 days in the previous week to 26 days. In the year-ago period, the supply cover was 31.5 days.

Gasoline: Supplies of gasoline were up for the third time in four weeks on higher production and imports. The nominal 35,000 barrels addition – contrary to the polled number of 1.9 million barrels fall in supply level – took gasoline stockpiles up to 229.9 million barrels. Despite last week’s increase, the existing stock of the most widely used petroleum product remains 0.9% below the year-earlier level but is close to the upper limit of the average range.

Distillate: Distillate fuel supplies (including diesel and heating oil) went up by 748,000 barrels last week, as opposed to analysts’ expectations for 600,000 barrels decrease in supply level. The third successive weekly rise could be attributed to fall in demand. At 149.2 million barrels, current supplies are 3.6% below the year-ago level but are in the upper half of the average range for this time of the year.

Refinery Rates: Refinery utilization jumped 1.2% from the prior week’s 12-year highs to 96.6%.

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.

Want to Own an Energy Stock Now?

If you are looking for a near-term energy play, Range Resources Corp. (RRC - Free Report) may be a good selection. This company has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Headquartered in Fort Worth, TX, Range Resources is an independent oil and gas company, engaged in the exploration, development and acquisition of oil and gas properties primarily in the southwestern, Appalachian and Gulf Coast regions of the U.S. The 2017 Zacks Consensus Estimate for this company is 48 cents, representing some 1,487.2% earnings per share growth over 2016. Next year’s average forecast is 64 cents, pointing to another 34.6% growth.

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