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U.S. Crude Hits its Lowest Price in 2 Months: Here's Why

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Oil prices fell $1.15, or 2%, to $55.59 a barrel on Thursday, hitting the lowest levels since Nov 29 on fears that the coronavirus outbreak in China would have a severe impact on oil demand. The health scare, which has killed 26 people so far, was enough to offset the impact of U.S. Energy Department's latest inventory release. The report showed that crude and distillate stockpiles recorded unexpected weekly declines.

Overall, the latest round of energy market selling comes amid heightened worries of the mysterious illness playing out like the 2003 SARS epidemic. Although it is quite difficult at this stage to assess the possible implications, according to Goldman Sachs, the deadly virus could lower oil demand by up to 260,000 barrels per day if it impacts passenger traffic due to travel restrictions.

Meanwhile, let’s also review the EIA's Weekly Petroleum Status Report for the week ending Jan 17.

Crude Oil: The federal government’s EIA report revealed that crude inventories fell by 405,000 barrels, compared to the 500,000 barrels increase that energy analysts had expected. A marginal decline in imports was behind the surprise stockpile draw with the world's biggest oil consumer even as U.S. production remained at record levels. This puts the total domestic stocks at 428.1 million barrels – 3.8% below the year-ago figure and 2% lower than the five-year average.

The latest report also showed that supplies at the Cushing terminal in Oklahoma (the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange) were down 961,000 barrels to 34.9 million barrels.

The crude supply cover – at 25.2 days – was unchanged from the previous week. In the year-ago period, the supply cover was 25.6 days.

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

Gasoline: Gasoline supplies increased for the eleventh straight week. The fuel’s 1.7 million barrels build is attributable to higher imports and production. Analysts had forecast 3.3 million barrels climb. At 260 million barrels, the current stock of the most widely used petroleum product essentially remained where they were a year ago but exceeds the five-year average range by 4%.

Distillate: Distillate fuel supplies (including diesel and heating oil) were down for just the second time in nine weeks. The 1.2 million barrels decrease could be attributed to strengthening demand and lower production. Meanwhile, the market had been looking for a supply climb of 1.6 million barrels. Current supplies – at 146 million barrels – are 2.5% higher than the year-ago level but remain 2% below the five-year average.

Refinery Rates: Refinery utilization was down 1.7% from the prior week to 90.5%.

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, Chevron (CVX - Free Report) and ConocoPhillips COP and refiners such as Valero Energy VLO and Marathon Petroleum MPC.

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