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EIA Reports Shock Inventory Increase on Lower Refinery Runs

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The U.S. Energy Department's inventory release showed that crude stockpiles recorded a shock weekly build on plunging refinery utilization. On a further bearish note, gasoline inventories increased, while domestic oil production hit a new record. As a result, the front month West Texas Intermediate (WTI) crude futures moved down 1% (or 71 cents) to end at $71.57 per barrel yesterday.

Analysis of the EIA Data

Crude Oil: The federal government’s EIA report revealed that crude inventories rose by 1.9 million barrels for the week ending Sep 11, following a decrease of 2.1 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 2.2 million barrels. Record high domestic production and a large drop in refining activity led to the surprise stockpile build with the world's biggest oil consumer.

Output in the United States edged up by 100,000 barrels per day last week to 11.1 million barrels per day – the most since the EIA started maintaining weekly data in 1983. In early February, oil production broke through the 10 million barrels a day threshold for the first time in nearly 50 years and has maintained the record levels thereafter. Meanwhile, with the onset of the maintenance season, refiners cut back on their crude runs sharply - by 901,000 barrels per day to be precise.

Moreover, stocks at the Cushing terminal in Oklahoma – the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange – rose 461,000 barrels to 23 million barrels.

Despite last week’s shock increase, oil inventories have generally trended lower in a year and a half. The gradual fall has helped the U.S. crude market shift from year-over-year storage surplus to a deficit. At 396 million barrels, current crude supplies are 15.9% below the year-ago figure and 2% under the five-year average.

The crude supply cover was up from 22.4 days in the previous week to 22.8 days. In the year-ago period, the supply cover was 31.5 days.

Gasoline: Gasoline supplies were up for the third time in four weeks on weaker demand. The 1.5 million barrels gain – above the polled number of 256,200 barrels rise in supply level – took gasoline stockpiles up to 235.7 million barrels. Following last week’s addition, the current stock of the most widely used petroleum product is now 8.5% above the year-earlier level and is 8% over the five-year range.

Distillate: Distillate fuel supplies (including diesel and heating oil) were down 2.2 million barrels last week. Meanwhile, analysts expected the supply level to increase by 667,000 barrels. The first weekly fall in four weeks could be attributed to higher demand and lower production. At 137.9 million barrels, current supplies are essentially flat with the year-ago level and 3% lower than the five-year average.

Refinery Rates: Refinery utilization was down by 5% from the prior week to 90.4%.

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.

The data from EIA generally acts as a catalyst for crude prices and affect producers, such as ExxonMobil (XOM - Free Report) , Chevron (CVX - Free Report) and ConocoPhillips (COP - Free Report) , and refiners such as Valero Energy (VLO - Free Report) , Phillips 66 (PSX - Free Report) and Marathon Petroleum (MPC - Free Report) .

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NOW Inc. is one of the largest providers of supply chain solutions to the energy industry in the United States, Canada, and internationally. In the last 60 days, eight earnings estimates moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings has risen 107% in the same period.

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