The U.S. Energy Department's inventory release showed that crude stockpiles recorded a large draw after swelling for 10 straight weeks. However, the decline – mainly triggered by lower net imports – failed to prop up the commodity after OPEC sources said the group failed to reach a consensus on Thursday to cut production in an attempt to drain inventories and boost prices.
As a result, the front month West Texas Intermediate crude futures lost 2.7% (or $1.40) to $51.49 per barrel yesterday. The bearish oil market sentiment prompted selling in energy stocks, with the likes of Callon Petroleum Company (CPE - Free Report) , Concho Resources, Inc. (CXO - Free Report) , Cimarex Energy Co. (XEC - Free Report) , Basic Energy Services, Inc. (BAS - Free Report) and C&J Energy Services, Inc. (CJ - Free Report) hitting fresh 52-week lows.
Analysis of the EIA Data
Crude Oil: The federal government’s EIA report revealed that crude inventories fell by 7.3 million barrels for the week ending Nov 30, following an increase of 3.6 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 2.39 million barrels.
Lower imports and sharp rise in exports led to the larger-than-expected stockpile draw with the world's biggest oil consumer even as domestic production stayed strong at 11.7 million barrels per day – the most since the EIA started maintaining weekly data in 1983.
Despite last week’s big decrease, oil inventories have generally trended higher over the past few months. In fact, stockpiles rose for 10 straight weeks before this decline and are up more than 40 million barrels since September. The steady rise is on the verge of shifting the U.S. crude market from year-over-year storage deficit to a surplus. At 443.2 million barrels, current crude supplies are just around 1% below the year-ago figure and are 6% above the five-year average.
Moreover, the latest report shows that stocks at the Cushing terminal in Oklahoma – the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange – soared 1.7 million barrels to 38.3 million barrels.
The crude supply cover was down from 26.8 days in the previous week to 25.9 days. In the year-ago period, the supply cover was 26.5 days.
Gasoline: Gasoline supplies rose for the first time in four weeks as demand weakened. The 1.7 million barrels gain – significantly above the polled number of 357,000 barrels rise in supply level – took gasoline stockpiles up to 226.3 million barrels. Following last week’s build, the current stock of the most widely used petroleum product is about 2.4% above the year-earlier level and 4%over the five-year range.
Distillate: Distillate fuel supplies (including diesel and heating oil) were up 3.8 million barrels last week, while analysts were looking for an inventory addition of 1.25 million barrels. The second straight weekly build could be attributed to higher production and imports. But the recent string of drawdowns means that current supplies – at 125.6 million barrels – are 2.9% lower than the year-ago level and 5% below than the five-year average.
Refinery Rates: Refinery utilization edged down fractionally (by 0.1%) from the prior week to 95.5%.
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 Energy Stocks Now?
Oil’s troubles have pushed the index into a bear market, leading to a more than 30% drop from recent highs. At this time, it might be prudent for investors to maintain caution — either withdraw for a while or look for fundamentally sound stocks.
If you are looking for near-term energy plays, Unit Corporation (UNT - Free Report) and Helmerich & Payne, Inc. (HP - Free Report) might be good selections. Unit has a Zacks Rank #1 (Strong Buy), while Helmerich & Payne carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The 2018 Zacks Consensus Estimate for Unit is 96 cents, representing some 77.8% earnings per share growth over 2017. Next year’s average forecast is $1.62, pointing to another 68.5% growth.
In the last 60 days, six earnings estimates for Helmerich & Payne moved north, while one moved south for the current fiscal year. The Zacks Consensus Estimate for earnings has risen 27.9% in the same period.
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