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Pump Prices Climb to 6-Month High on Tightening Supplies

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Oil prices touched five-month highs on Wednesday after government data showed the eighth straight weekly drop in U.S. stockpiles of gasoline, which offset the build in crude inventories. The front month West Texas Intermediate (WTI) crude futures rose 63 cents, or 1%, to $64.61 a barrel, hitting the highest levels since Oct 31. Meanwhile, gasoline futures ended at $2.069 a gallon, up by 3.5% and notching its highest close since Oct 9.

Overall, crude is being supported by the so-called OPEC+ deal that is cutting production by around 1.2 million barrels per day until the end of June. U.S. sanctions against Venezuela and Iran also continue to tighten the commodity’s fundamentals.

Analysis of EIA Data

Crude Oil: The federal government’s EIA report revealed that crude inventories rose by 7 million barrels for the week ending Apr 5, following an increase of 7.2 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 2.8 million barrels. Strong domestic production and a sharp fall in exports led to the massive stockpile build with the world's biggest oil consumer.

On a more positive note, though, 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 – was down 1.1 million barrels to 46 million barrels.

At 456.6 million barrels, current crude supplies are 6.5% above the year-ago figure but are at the five-year average. The crude supply cover was up from 28.1 days in the previous week to 28.5 days. In the year-ago period, the supply cover was 25.4 days.

Gasoline: Gasoline supplies tallied an eighth straight week of drops as demand jumped. The 7.7 million barrels decline – far ahead of the polled number of 1.9 million barrels fall – took gasoline stockpiles down to 229.1 million barrels. Following last week’s draw, the stock of the most widely used petroleum product is now 4.1% below the year-earlier level but are level with the five-year range.

Distillate: Distillate fuel supplies (including diesel and heating oil) edged down 116,000 barrels last week, while analysts were looking for an inventory draw of around 1.5 million barrels. The nominal decrease could be attributed to export growth. Current supplies – at 128.1 million barrels – are in line with the year-ago level though stocks remain 6% below than the five-year average.

Refinery Rates: Refinery utilization was up by 1.1% from the prior week to 87.5%.

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.

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) .

Want to Own an Energy Stock Now?

While easing oversupply concerns and hopes of U.S.-China trade deal helped oil to bounce back to around $65, it remains to be seen if it can maintain the recent gains. One factor that could undermine the efforts to tighten the market is the seemingly relentless increase in crude oil production across the U.S. shale patch. There are also concerns that a slowing global economy could translate into weak demand for the commodity.

Meaning, there remains a lot of uncertainty around the commodity right now, which can lead to volatility and price fluctuations. At this time, it might be prudent for investors to maintain caution and look for fundamentally sound stocks.

If you are looking for a near-term energy play, Royal Dutch Shell plc (RDS.A - Free Report) might be an excellent selection. Shell has a Zacks Rank #1 (Strong Buy).

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The Hague-based Shell is a major international integrated oil and gas company that divides its operations into four major segments: Upstream, Downstream, Corporate and Integrated Gas. Over 30 days, the company has seen the Zacks Consensus Estimate for 2019 increase 1.5% to $5.26 per share.

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