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Will Rising U.S. Stockpiles Disrupt Crude's Bullish Trend?
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Oil futures went higher Thursday after U.S. government data revealed a drop in gasoline stockpiles and big drawdown at the storage hub in Cushing, even though domestic supplies of crude posted a surprise weekly climb. On the New York Mercantile Exchange, July WTI crude rallied 90 cents, or 2.7%, to settle at $33.71 a barrel.
Analyzing the Latest EIA Report
Below we review the EIA's Weekly Petroleum Status Report for the week ending May 22.
Crude Oil: The federal government’s EIA report revealed that crude inventories rose by 7.9 million barrels, versus expectations for a 1.2 million barrels decrease. A big jump in imports from Saudi Arabia accounted for the surprise stockpile increase with the world's biggest oil consumer. This puts total domestic stocks at 534.4 million barrels – 12.2% above the year-ago figure and 13% over the five-year average.
Meanwhile, oil prices 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 decline 3.4 million barrels to 53.5 million barrels.
The crude supply cover was up from 41.3 days in the previous week to 41.7 days. In the year-ago period, the supply cover was 28.7 days.
Let’s turn to products now.
Gasoline: Gasoline supplies tallied a decrease for the fourth time in five weeks. The fuel’s 724,000 barrels decline is attributable to higher demand. Analysts had forecast 1 million barrels fall. At 255 million barrels, the current stock of the most widely used petroleum product is 10.4% higher than the year-earlier level and is 10% above the five-year average range.
Distillate: Distillate fuel supplies (including diesel and heating oil) jumped for an eighth straight week. The 5.5 million barrels increase reflected a dropoff in demand. Meanwhile, the market had been looking for a supply build of 2.5 million barrels. Current supplies — at 164.3 million barrels — are 31.7% higher than the year-ago level and 24% above the five-year average.
Refinery Rates: Refinery utilization was up 1.9% from the prior week to 71.3%.
Conclusion
The crude inventory rise surprised the market, which was expecting a decline based on easing lockdown measures.
However, the report was supportive in terms of U.S. producers scaling back operations. Weekly figures show output has dropped to 11.4 million barrels per day, since reaching 13.1 million in the second week of March.
In particular, output from United States’ number one basin – Permian - is set to fall by 87,000 bbl/d month over month to 4.3 MMbbl/d in June – the second month of decline. Permian-based energy producers like Diamondback Energy (FANG - Free Report) , Cimarex Energy, EOG Resources (EOG - Free Report) , Parsley Energy, Concho Resources and Pioneer Natural Resources (PXD - Free Report) are all going to invest a lot less money into the unconventional play in 2020.
The pockets of bullish data in the report notwithstanding, investors still remain worried of the supply glut. In total, U.S. commercial stockpiles are up by more than 18% since March, while domestic fuel demand remains weak. As it is, a steep build in distillate inventories in the latest report kept traders worried.
Again, despite a rise in refinery runs, utilization in the United States is still close to its lowest level ever. Downstream operators including Valero Energy (VLO - Free Report) , Marathon Petroleum (MPC - Free Report) , HollyFrontier – all carrying a Zacks Rank #3 (Hold) - have drastically reduced processing capacity to cope with the demand erosion caused by efforts to stem the spread of the coronavirus.
As a proof of the demand destruction, EIA estimates U.S. oil consumption in 2020 is expected to plunge by 2.2 million barrels per day to 18.29 million barrels per day.
Therefore, while the current trend for crude is slowly turning positive with a record monthly gain in sight, serious questions remain about the future direction of oil.
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Will Rising U.S. Stockpiles Disrupt Crude's Bullish Trend?
Oil futures went higher Thursday after U.S. government data revealed a drop in gasoline stockpiles and big drawdown at the storage hub in Cushing, even though domestic supplies of crude posted a surprise weekly climb. On the New York Mercantile Exchange, July WTI crude rallied 90 cents, or 2.7%, to settle at $33.71 a barrel.
Analyzing the Latest EIA Report
Below we review the EIA's Weekly Petroleum Status Report for the week ending May 22.
Crude Oil: The federal government’s EIA report revealed that crude inventories rose by 7.9 million barrels, versus expectations for a 1.2 million barrels decrease. A big jump in imports from Saudi Arabia accounted for the surprise stockpile increase with the world's biggest oil consumer. This puts total domestic stocks at 534.4 million barrels – 12.2% above the year-ago figure and 13% over the five-year average.
Meanwhile, oil prices 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 decline 3.4 million barrels to 53.5 million barrels.
The crude supply cover was up from 41.3 days in the previous week to 41.7 days. In the year-ago period, the supply cover was 28.7 days.
Let’s turn to products now.
Gasoline: Gasoline supplies tallied a decrease for the fourth time in five weeks. The fuel’s 724,000 barrels decline is attributable to higher demand. Analysts had forecast 1 million barrels fall. At 255 million barrels, the current stock of the most widely used petroleum product is 10.4% higher than the year-earlier level and is 10% above the five-year average range.
Distillate: Distillate fuel supplies (including diesel and heating oil) jumped for an eighth straight week. The 5.5 million barrels increase reflected a dropoff in demand. Meanwhile, the market had been looking for a supply build of 2.5 million barrels. Current supplies — at 164.3 million barrels — are 31.7% higher than the year-ago level and 24% above the five-year average.
Refinery Rates: Refinery utilization was up 1.9% from the prior week to 71.3%.
Conclusion
The crude inventory rise surprised the market, which was expecting a decline based on easing lockdown measures.
However, the report was supportive in terms of U.S. producers scaling back operations. Weekly figures show output has dropped to 11.4 million barrels per day, since reaching 13.1 million in the second week of March.
In particular, output from United States’ number one basin – Permian - is set to fall by 87,000 bbl/d month over month to 4.3 MMbbl/d in June – the second month of decline. Permian-based energy producers like Diamondback Energy (FANG - Free Report) , Cimarex Energy, EOG Resources (EOG - Free Report) , Parsley Energy, Concho Resources and Pioneer Natural Resources (PXD - Free Report) are all going to invest a lot less money into the unconventional play in 2020.
The pockets of bullish data in the report notwithstanding, investors still remain worried of the supply glut. In total, U.S. commercial stockpiles are up by more than 18% since March, while domestic fuel demand remains weak. As it is, a steep build in distillate inventories in the latest report kept traders worried.
Again, despite a rise in refinery runs, utilization in the United States is still close to its lowest level ever. Downstream operators including Valero Energy (VLO - Free Report) , Marathon Petroleum (MPC - Free Report) , HollyFrontier – all carrying a Zacks Rank #3 (Hold) - have drastically reduced processing capacity to cope with the demand erosion caused by efforts to stem the spread of the coronavirus.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
As a proof of the demand destruction, EIA estimates U.S. oil consumption in 2020 is expected to plunge by 2.2 million barrels per day to 18.29 million barrels per day.
Therefore, while the current trend for crude is slowly turning positive with a record monthly gain in sight, serious questions remain about the future direction of oil.
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>