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Oil Price Retreats 4.9% in a Day: What's Behind the Plunge?

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Oil prices dropped on Wednesday after the U.S. government reported an unexpected increase in crude stockpiles and hefty build in refined product inventories. The bearish data sets deepened the commodity’s losses that was already on the defensive due to the cooling of geopolitical tensions between U.S. and Iran.

WTI crude, the American benchmark, fell $3.09 (or 4.9%), to settle at $59.61 a barrel on the New York Mercantile Exchange, the lowest finish since Dec 12.

Below we review the EIA's Weekly Petroleum Status Report for the week ending Jan 3.

Crude Oil: The federal government’s EIA report revealed that crude inventories rose by 1.2 million barrels, compared to the 3.7 million barrels decrease that energy analysts had expected. A combination of surging imports and lower refinery runs largely drove the surprise stockpile build with the world's biggest oil consumer even as U.S. production remained at record levels. This puts the total domestic stocks at 431.1 million barrels – 2% below the year-ago figure and at the five-year average.

Meanwhile, the oil market drew some support from stockpile draw at the Cushing terminal in Oklahoma. The key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange saw inventories edge down 821,000 barrels to 35.5 million barrels.

The crude supply cover – at 25.5 days – was unchanged from the previous week. In the year-ago period, the supply cover was 25.1 days.

Turning to products, and it is a fairly bearish story as well.

Gasoline: Gasoline supplies increased for the ninth straight week. The fuel’s 9.1 million barrels jump – the largest in four years – is attributable weak demand. Analysts had forecast 4.5 million barrels climb. At 251.6 million barrels, the current stock of the most widely used petroleum product is 1.4% above the year-earlier level and exceeds the five-year average range by 5%.

Distillate: Distillate fuel supplies (including diesel and heating oil) were up for the sixth time in seven weeks. The 5.3 million barrels increase was slightly higher than the supply climb of 5 million barrels that analysts were looking for. Current supplies – at 139.1 million barrels – are 0.6% lower than the year-ago level and remain 8% below the five-year average.

Refinery Rates: Refinery utilization was down 1.5% from the prior week to 93%.

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 and ConocoPhillips COP and refiners such as Valero Energy VLO and Marathon Petroleum MPC.

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