U.S. oil prices fell on Wednesday after the Energy Department's inventory release showed a surprise addition to crude stockpiles that took it to fresh record levels. On the New York Mercantile Exchange, July WTI crude lost 42 cents, or 1.1%, to settle at $37.96 a barrel.
Analyzing the Latest EIA Report
Below we review the EIA's Weekly Petroleum Status Report for the week ending Jun 12.
Crude Oil: The federal government’s EIA report revealed that crude inventories rose by 1.2 million barrels, versus expectations for a 3.5 million barrels decrease. This puts total domestic stocks at 539.3 million barrels – the highest on record, 11.8% above the year-ago figure and 15% 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 2.6 million barrels to 46.8 million barrels.
The crude supply cover was down from 40.9 days in the previous week to 40.4 days. In the year-ago period, the supply cover was 28.4 days.
Let’s turn to products now.
Gasoline: Gasoline supplies tallied a decrease for the first time in three weeks. The fuel’s 1.7 million barrels decline compares with analyst forecast of 2.2 million barrels fall. At 257 million barrels, the current stock of the most widely used petroleum product is 10.2% higher than the year-earlier level and is 10% above the five-year average range.
Distillate: Distillate fuel supplies (including diesel and heating oil) fell by 1.4 million barrels after increasing for ten straight weeks. Meanwhile, the market had been looking for a supply build of 3.1 million barrels. Current supplies — at 174.5 million barrels — are 36.5% over the year-ago level and 28% above the five-year average.
Refinery Rates: Refinery utilization was up 0.7% from the prior week to 73.8%.
The crude inventory rise surprised the market, which was expecting a decline based on easing lockdown measures. Supplies are now at their highest weekly level on record, topping the former all time high of 538.1 million barrels achieved in the previous week.
On a slightly positive note, oil at the storage hub in Cushing continued to fall. The report was also supportive in terms of U.S. producers scaling back operations. Weekly figures show output has dropped to 10.5 million barrels per day - the lowest since 2018 - since reaching 13.1 million in the second week of March.
In particular, volumes from United States’ number one basin – Permian - is set to fall by 7,000 bbl/d month over month to 4.3 MMbbl/d in July – the third month of decline, as the likes of Diamondback Energy (FANG - Free Report) , Cimarex Energy (XEC - Free Report) , Concho Resources (CXO - Free Report) , Pioneer Natural Resources (PXD - Free Report) and others invest a lot less money into the unconventional play in 2020.
Another piece of optimistic news was the drop in product inventories. The thing that stands out is after ten consecutive weeks of builds to its highest since 2010, distillate stocks finally fell.
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 19% since March, while domestic fuel demand, though improving, remains weak.
Again, despite another rise in refinery runs, utilization in the United States is not too far from its lowest level ever. Downstream operators including Valero Energy (VLO - Free Report) , Marathon Petroleum (MPC - Free Report) , Phillips 66 (PSX - Free Report) – 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. The demand has still not picked up to a level where the operators think of restarting/increasing their refinery work.
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 to plunge by 2.4 million barrels per day to 18.06 million barrels per day. On the other hand, Paris-based International Energy Agency (‘IEA’) projects global crude consumption to fall a record 8.1 million barrels per day to 91.7 million barrels per day in 2020.
Considering these factors, while the OPEC+ production cut extension most likely managed to put a floor under prices, serious questions remain about the future direction of oil.
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