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Key Reasons Why U.S. Oil Prices Fell for 2nd Straight Day

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Oil prices dropped 1.4% on Wednesday, extending losses from a 2.3% decline the previous session amid indication that Saudi Arabia is on the verge of restoring the output they halted due to the drone attack and a report from the U.S. government showing a surprise increase in crude stockpiles. 

On Sep 14, unmanned aerial vehicles struck the state-run Saudi Arabian Oil Company’s (Aramco) Abqaiq plant – a key crude processing facility – and the Khurais complex, which houses the kingdom’s second-largest oilfield.

Such was the extent of damage that it was touted as the ‘single worst sudden disruption ever’ for the oil markets, surpassing the impact of the 1991 Persian Gulf War. WTI crude, the U.S. benchmark, soared nearly 15% on the following Monday, to $62.90 a barrel. This marked the sharpest daily price rise for the domestic benchmark grade since September 2008, putting the ‘black gold’ at a four-month high.

Subsequently, the commodity retreated to around $56 a barrel as investors weighed the prospect of an earlier-than-expected recovery in state-run Saudi Aramco’s affected production.

While the attacks on Saudi Arabia’s energy installations and the restoration of lost production are well documented, below we review the EIA's Weekly Petroleum Status Report for the week ending Sep 20.

Analysis of the EIA Data

Crude Oil: The federal government’s EIA report revealed that crude inventories rose by 2.4 million barrels, compared to the 190,000 barrels drawdown that energy analysts had expected. A combination of higher production – now at record levels – and lower refinery runs largely drove the surprise stockpile build with the world's biggest oil consumer. This puts the total domestic stocks at 419.5 million barrels – 5.9% above the year-ago figure and essentially at their five-year average.

Oil in storage in the Cushing terminal in Oklahoma (the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange) increased as well, rising by 2.3 million barrels.

The crude supply cover was up from 24.2 days in the previous week to 24.6 days. In the year-ago period, the supply cover was 22.8 days.

Turning to products, and it is a fairly mixed story.

Gasoline: Gasoline supplies edged up 519,000 barrels as production of the fuel increased by 789,000 barrels per day to 10.2 million barrels per day. Analysts had forecast 300,000 barrels climb. At 230.2 million barrels, the current stock of the most widely used petroleum product is 2.3% below the year-earlier level but exceeds the five-year average range by 4%.

Distillate: Distillate fuel supplies (including diesel and heating oil) were down 3 million barrels last week on higher demand and lower production, while analysts were looking for an inventory draw of 600,000 barrels. Current supplies – at 133.7 million barrels – are 3% lower than the year-ago level and remain 7% below than the five-year average.

Refinery Rates: Refinery utilization was down 1.4% from the prior week to 89.8%.

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) – all carrying Zacks Rank #3 (Hold) – and refiners such as Valero Energy (VLO - Free Report) , Phillips 66 (PSX - Free Report) and Marathon Petroleum (MPC - Free Report) .

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

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