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U.S. Crude Supplies Fall from Record Highs

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The U.S. Energy Department's weekly inventory release showed that crude stockpiles logged an unexpected decrease from their all-time high level, as refiner demand strengthened and production fell. The report further revealed that product inventories – gasoline and distillate – increased from their previous week levels on the back of weak consumption.

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.

Analysis of the Data

Crude Oil: The federal government’s EIA report revealed that crude inventories fell by 624,000 barrels for the week ending May 10, 2013, following a climb of 230,000 barrels in the previous week.

The analysts surveyed by Platts – the energy information arm of McGraw-Hill Financial Inc. – had expected crude stocks to go up some 300,000 barrels. An uptick in refinery utilization rates, together with lower level of production led to the surprise stockpile drawdown with the world's biggest oil consumer.

However, crude inventories at the Cushing terminal in Oklahoma – the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange – were up 575,000 barrels from the previous week’s level to 49.72 million barrels. Stocks are currently just under the all-time high of 51.86 million barrels reached in January.

Despite the weekly inventory decrease, at 394.89 million barrels, current crude supplies are 3.5% above the year-earlier level, and exceeds the upper limit of the average for this time of the year. The crude supply cover was down from 26.6 days in the previous week to 26.5 days. In the year-ago period, the supply cover was 25.9 days.

Gasoline: Supplies of gasoline were up for the first time in 5 weeks, as domestic consumption weakened and production jumped. This was partially offset by lower imports.

The 2.59 million barrels gain – contrary to analysts’ projections for a 800,000 barrels decrease in supply level – took gasoline stockpiles up to 217.66 million barrels. Following this build, the existing inventory level of the most widely used petroleum product is 6.6% higher than the year-earlier level and is in the top half of the average range.

Distillate: Distillate fuel supplies (including diesel and heating oil) were up 2.30 million barrels last week, above analysts’ expectations for an 800,000 barrels gain in inventory level. The increase in distillate fuel stocks – the fifth in as many weeks – could be attributed to weaker demand and higher production, partially offset by plunging imports.

At 119.86 million barrels, distillate supplies are essentially flat with the year-ago level but are in the lower limit of the average range for this time of the year.

Refinery Rates: Refinery utilization was up 1.0% from the prior week to 88.0%. The analysts were expecting the refinery run rate to increase 0.4% to 87.4%.

Zacks Rank

A bullish data from the EIA generally acts as a positive catalyst for crude prices and buoy producers, such as Exxon Mobil Corp. (XOM - Free Report) , Chevron Corp. (CVX - Free Report) and ConocoPhillips (COP - Free Report) . With an improvement in the companies’ ability to generate positive earnings surprises, they can then move higher from their current Zacks Rank #3 (Hold).

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