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U.S. Oil Stocks Rise Sharply, Coronavirus Chokes Gasoline Demand
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Oil prices were down on Wednesday after U.S. crude oil stockpiles soared nearly 14 million barrels last week, the largest weekly build in more than three years. WTI futures fell by 17 cents, or 0.8%, to $20.31 a barrel. A record decline in gasoline demand on account of lower pump sales due to the coronavirus lockdown was also part of the picture. As it is, it has been a forgettable week for the commodity with price of U.S. crude plunging to $19.27 a barrel at one point Monday, its lowest since 2002.
Oil Prices Crash
The oil market is struggling and there is no denying that fundamentals remain firmly bearish. It's been a catastrophic year so far for crude oil, which has suffered a dramatic 67% collapse due to a massive supply glut. The price plunge has wreaked havoc on the industry claiming thousands of jobs, pushing debt-heavy companies toward default and causing a steep drop in stock prices.
Let’s see why.
The fast-spreading novel coronavirus outbreak has triggered an unprecedented selloff in the commodity. In particular, with major cities under lockdown and travel restrictions in place, the consumption for crude is set to drop substantially. Global efforts to combat the pandemic’s impact and rev up economic activity have largely failed so far. The virus-inflicted demand slowdown has led to hefty oil selloff.
Pressure in the oil markets has been exacerbated by the no-holds-barred price war between Saudi Arabia and Russia. The carnage deepened after Saudi Arabia (the OPEC cartel’s biggest producer and exporter) and Russia (leader of the non-OPEC contingent) failed to agree on additional production cuts to boost oil market fundamentals and prop up prices. Subsequently, both countries decided to open the production floodgates, which combined with the demand destruction to send prices into a tailspin.
In a nutshell, it's basically too much supply but too little demand.
The carnage sent most energy companies scurrying for cover. Even the ‘Big Oil’ companies don’t seem to be immune to this price crash. Supermajors Chevron (CVX - Free Report) , Royal Dutch Shell and TOTAL S.A. have all announced steps to "rationalize" their planned capital spending for the current year in response to the sudden oil price slump. The majors, while suspending share buyback programs, intend to generate sufficient free cash flow to maintain the dividend payouts, thereby preserving shareholder values.
U.S. shale producers have been the biggest casualties, with the likes of Diamondback Energy (FANG - Free Report) , Concho Resources , Parsley Energy, among others, lowering their 2020 capital expenditure target to contend with depleted oil prices. Some E&P operators like Occidental (OXY - Free Report) - carrying a Zacks Rank #4 (Sell) - slashed its dividend payout, while Whiting Petroleum recently filed for bankruptcy.
The latest figures from the EIA, which point to an oversupplied oil market, has added to the turmoil.
Analyzing the Latest EIA Report
The U.S. Energy Department's latest inventory release revealed a tenth straight weekly increase in stockpiles, while gasoline inventories rose sharply too.
Below we review the EIA's Weekly Petroleum Status Report for the week ending Mar 27.
Crude Oil: The federal government’s EIA report revealed that crude inventories surged by 13.8 million barrels – the largest weekly build since 2016 - compared to the 4.6 million barrels increase that energy analysts had expected. A decline in refinery runs primarily drove the steep stockpile build with the world's biggest oil consumer. This puts the total domestic stocks at 469.2 million barrels – 4.4% above the year-ago figure and essentially in line with 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) was up 3.5 million barrels to 42.8 million barrels.
The crude supply cover was up from 28.9 days in the previous week to 30.1 days. In the year-ago period, the supply cover was 28.1 days.
Let’s turn to products now.
Gasoline: Gasoline supplies tallied a massive increase following eight straight weekly drops. The fuel’s 7.5 million barrels jump is attributable to the drying up of demand from the coronavirus-induced economic shutdown. Analysts had forecast 3.6 million barrels build. At 246.8 million barrels, the current stock of the most widely used petroleum product is 4.2% higher than the year-earlier level and is 4% above the five-year average range. In fact, disruptions by the pandemic’s effects depressed the products’ consumption by 2.2 million barrels last week – the most on record.
With the EIA numbers starting to reflect the demand destruction caused by the contagion, market watchers believe that consumption is set to shrink further (in April and May) and the worst is still to come for the oil markets. Independent analysts say that motor fuel demand is set to take a severe hit as coronavirus forces more people to work remotely and observe social distancing. In fact, prices at the pump are at 20-year lows, with a gallon of gasoline at some U.S. states averaging less than $1. While this might be the best time in two decades to plan a road trip, there is hardly any rush to take advantage amid the coronavirus shutdown.
Distillate: Distillate fuel supplies (including diesel and heating oil) were down for an eleventh consecutive week. The 2.2 million barrels decrease could be attributed to higher demand. Meanwhile, the market had been looking for a supply draw of 600,000 barrels. Current supplies — at 122.2 million barrels — are 4.7% lower than the year-ago level and remain 13% below the five-year average.
Refinery Rates: Refinery utilization was down 5% from the prior week to 82.3%, the lowest since September 2017.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
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U.S. Oil Stocks Rise Sharply, Coronavirus Chokes Gasoline Demand
Oil prices were down on Wednesday after U.S. crude oil stockpiles soared nearly 14 million barrels last week, the largest weekly build in more than three years. WTI futures fell by 17 cents, or 0.8%, to $20.31 a barrel. A record decline in gasoline demand on account of lower pump sales due to the coronavirus lockdown was also part of the picture. As it is, it has been a forgettable week for the commodity with price of U.S. crude plunging to $19.27 a barrel at one point Monday, its lowest since 2002.
Oil Prices Crash
The oil market is struggling and there is no denying that fundamentals remain firmly bearish. It's been a catastrophic year so far for crude oil, which has suffered a dramatic 67% collapse due to a massive supply glut. The price plunge has wreaked havoc on the industry claiming thousands of jobs, pushing debt-heavy companies toward default and causing a steep drop in stock prices.
Let’s see why.
The fast-spreading novel coronavirus outbreak has triggered an unprecedented selloff in the commodity. In particular, with major cities under lockdown and travel restrictions in place, the consumption for crude is set to drop substantially. Global efforts to combat the pandemic’s impact and rev up economic activity have largely failed so far. The virus-inflicted demand slowdown has led to hefty oil selloff.
Pressure in the oil markets has been exacerbated by the no-holds-barred price war between Saudi Arabia and Russia. The carnage deepened after Saudi Arabia (the OPEC cartel’s biggest producer and exporter) and Russia (leader of the non-OPEC contingent) failed to agree on additional production cuts to boost oil market fundamentals and prop up prices. Subsequently, both countries decided to open the production floodgates, which combined with the demand destruction to send prices into a tailspin.
In a nutshell, it's basically too much supply but too little demand.
The carnage sent most energy companies scurrying for cover. Even the ‘Big Oil’ companies don’t seem to be immune to this price crash. Supermajors Chevron (CVX - Free Report) , Royal Dutch Shell and TOTAL S.A. have all announced steps to "rationalize" their planned capital spending for the current year in response to the sudden oil price slump. The majors, while suspending share buyback programs, intend to generate sufficient free cash flow to maintain the dividend payouts, thereby preserving shareholder values.
U.S. shale producers have been the biggest casualties, with the likes of Diamondback Energy (FANG - Free Report) , Concho Resources , Parsley Energy, among others, lowering their 2020 capital expenditure target to contend with depleted oil prices. Some E&P operators like Occidental (OXY - Free Report) - carrying a Zacks Rank #4 (Sell) - slashed its dividend payout, while Whiting Petroleum recently filed for bankruptcy.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The latest figures from the EIA, which point to an oversupplied oil market, has added to the turmoil.
Analyzing the Latest EIA Report
The U.S. Energy Department's latest inventory release revealed a tenth straight weekly increase in stockpiles, while gasoline inventories rose sharply too.
Below we review the EIA's Weekly Petroleum Status Report for the week ending Mar 27.
Crude Oil: The federal government’s EIA report revealed that crude inventories surged by 13.8 million barrels – the largest weekly build since 2016 - compared to the 4.6 million barrels increase that energy analysts had expected. A decline in refinery runs primarily drove the steep stockpile build with the world's biggest oil consumer. This puts the total domestic stocks at 469.2 million barrels – 4.4% above the year-ago figure and essentially in line with 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) was up 3.5 million barrels to 42.8 million barrels.
The crude supply cover was up from 28.9 days in the previous week to 30.1 days. In the year-ago period, the supply cover was 28.1 days.
Let’s turn to products now.
Gasoline: Gasoline supplies tallied a massive increase following eight straight weekly drops. The fuel’s 7.5 million barrels jump is attributable to the drying up of demand from the coronavirus-induced economic shutdown. Analysts had forecast 3.6 million barrels build. At 246.8 million barrels, the current stock of the most widely used petroleum product is 4.2% higher than the year-earlier level and is 4% above the five-year average range. In fact, disruptions by the pandemic’s effects depressed the products’ consumption by 2.2 million barrels last week – the most on record.
With the EIA numbers starting to reflect the demand destruction caused by the contagion, market watchers believe that consumption is set to shrink further (in April and May) and the worst is still to come for the oil markets. Independent analysts say that motor fuel demand is set to take a severe hit as coronavirus forces more people to work remotely and observe social distancing. In fact, prices at the pump are at 20-year lows, with a gallon of gasoline at some U.S. states averaging less than $1. While this might be the best time in two decades to plan a road trip, there is hardly any rush to take advantage amid the coronavirus shutdown.
Distillate: Distillate fuel supplies (including diesel and heating oil) were down for an eleventh consecutive week. The 2.2 million barrels decrease could be attributed to higher demand. Meanwhile, the market had been looking for a supply draw of 600,000 barrels. Current supplies — at 122.2 million barrels — are 4.7% lower than the year-ago level and remain 13% below the five-year average.
Refinery Rates: Refinery utilization was down 5% from the prior week to 82.3%, the lowest since September 2017.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
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