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Surprise Drop in U.S. Crude Stocks

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The U.S. Energy Department's weekly inventory release showed that crude stockpiles dropped unexpectedly, as imports fell. The report further revealed that refined product inventories – gasoline and distillate – dropped from their week-ago levels, as demand strengthened. Meanwhile, refiners pulled back their utilization rates by 1.5%.

The Energy Information Administration (EIA) Petroleum Status Report, which contains data for 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, such as ExxonMobil Corp. (XOM - Free Report) , Chevron Corp. (CVX - Free Report) , ConocoPhillips (COP - Free Report) , Valero Energy Corp. (VLO - Free Report) and Tesoro Corp. .

Analysis of the Data

Crude Oil: The federal government’s EIA report revealed that crude inventories fell by 2.45 million barrels for the week ending September 21, 2012, following a jump of 8.53 million barrels in the previous week.

The analysts surveyed by Platts – the energy information arm of McGraw-Hill Companies Inc. , had expected oil stocks to go up some 1.5 million barrels. A sharp drop in the level of imports led to the surprise stockpile drawdown with the world's biggest oil consumer even as refiners lowered their utilization rates.

In particular, crude inventories at the Cushing terminal in Oklahoma – the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange – edged down by 83,000 barrels from the previous week’s level to 43.73 million barrels. Stocks are currently just under the all-time high of 47.78 million barrels reached in June.

At 365.18 million barrels, current crude supplies are 7.1% above the year-earlier level, and exceeds the upper limit of the average for this time of the year. The crude supply cover was up from 24.8 days in the previous week to 25.0 days. In the year-ago period, the supply cover was 22.4 days.

Gasoline: Supplies of gasoline decreased for the ninth time in as many weeks as domestic consumption improved and production fell. This was partially offset by higher imports.

The 481,000 barrels drop – compared to analyst projections for an unchanged supply level – took gasoline stockpiles down to 195.83 million barrels. As a result of this decrease, the existing inventory level of the most widely used petroleum product is now 8.9% off the year-earlier levels and is in the lower limit of the average range.

Distillate: Distillate fuel supplies (including diesel and heating oil) dropped by 482,000 barrels last week, against analyst expectations for a 1-million barrel increase in inventory level. The fall in distillate fuel stocks – the second in as many weeks – could be attributed to stronger demand and lower imports, partially offset by higher output.

At 127.75 million barrels, distillate supplies are 19.0% below the year-ago level and are near the lower limit of the average range for this time of the year.

Refinery Rates: Refinery utilization was down 1.5% from the prior week to 87.4%. The analysts were expecting the refinery run rate to remain unchanged.

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