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U.S. Crude Hit its Lowest Price in 5 Months: Here's Why

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Oil prices fell $2.13, or 4%, to $51.14 a barrel on Wednesday, hitting the lowest settlement level since January following the U.S. Energy Department's latest inventory release. That put WTI down 23% from its Apr 23 high of $66.30, reversing a strong rally in the earlier part of the year that saw prices jump more than 50% to a nearly six-month high.

The report showed that crude stockpiles recorded a much bigger-than-anticipated weekly build, ballooning to their highest since July 2017. On a further bearish note, the report revealed that gasoline inventory increased from its previous week level.

Investors Dump Energy Stocks

The federal data sparked widespread selling in energy stocks, which pushed the Energy Select Sector SPDR – an assortment of the largest U.S. energy companies – down more than 1.4% Wednesday. Consequently, some of, the biggest casualties of the S&P 500 included energy-related names like - Diamond Offshore Drilling, Inc. (DO - Free Report) , Halliburton (HAL - Free Report) , Baker Hughes, a GE company (BHGE - Free Report) , Helmerich & Payne, Inc. (HP - Free Report) , National Oilwell Varco (NOV - Free Report) and Cimarex Energy (XEC - Free Report) .

Analysis of the EIA Data

Crude Oil: The federal government’s EIA report revealed that crude inventories rose by 2.2 million barrels for the week ending Jun 7 to a nearly 2-year high. The analysts had expected crude stocks to go up some 80,000 barrels. Lower exports and strong domestic production led to the larger-than-expected stockpile build with the world's biggest oil consumer.

Crude exports averaged 3.1 million barrels per day last week, down 176,000 barrels per day from the previous week. Meanwhile, output in the United States pulled back slightly but at 12.3 million barrels per day remained near record high levels. In particular, output in the United States have climbed sharply on increased production from shale formations to remain over the 12 million barrels a day threshold since mid-February.

Oil inventories have generally trended higher since mid-March. In fact, stockpiles have expanded in 9 of the last 12 weeks and are up nearly 46 million barrels (or 10%) during the period.

The latest report also shows that stocks at the Cushing terminal in Oklahoma rose to their highest since December 2017. Inventories at the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange was up 2.1 million barrels to 52.9 million barrels.

At 485.5 million barrels, current crude supplies are 12.3% above the year-ago figure and 8% over the five-year average. The crude supply cover was down marginally - from 28.9 days in the previous week to 28.8 days. In the year-ago period, the supply cover was 25.2 days.

Gasoline: Gasoline supplies tallied a fourth successive weekly gain as production rose. The 764,000 barrels-addition – contrary to the polled number of 380,000 barrels draw – took gasoline stockpiles up to 234.9 million barrels. Taking into account last week’s increase, the stock of the most widely used petroleum product is now 2% above the five-year average range though it remains 0.8% below the year-earlier level.

Distillate: Distillate fuel supplies (including diesel and heating oil) fell 1 million barrels last week, while analysts were looking for an inventory build of around 704,000 barrels. The surprise decrease could be attributed to higher demand and lower production. Current supplies – at 128.4 million barrels – are 11.9% higher than the year-ago level though stocks remain 4% below than the five-year average.

Refinery Rates: Refinery utilization was up by 1.4% from the prior week to 93.2%.

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 businesses of companies engaged in the oil and refining industry.

Want to Own an Energy Stock Now?

In case you are looking for a near-term energy play despite all the bearish sentiment around, Chevron (CVX - Free Report) might be a good selection. The integrated major has a Zacks Rank #2 (Buy).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Chevron’s financial results have greatly improved over the past few quarters, primarily aided by surging production and free cash flow turnaround. In fact, Chevron's free cash flow and upstream production for 2018 hit a record. The company’s existing oil and gas development project pipeline is among the best in the industry, targeting a CAGR of 3-4% through 2023 thanks to the planned expansion in the Permian Basin. Moreover, growing free cash flow should enable Chevron to deliver stable and rising dividend in the foreseeable future.

Over 60 days, the San Ramon, CA-based Chevron has seen the Zacks Consensus Estimate for 2019 increase 21% to $7.94 per share.

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