Here's How the EIA's Inventory Report Affected Oil Prices

U.S. oil prices slid on Dec 1, as a higher-than-expected build-up in fuel inventories and worries over a slowdown in energy demand from the spread of the coronavirus Omicron variant outweighed the fall in domestic oil stocks. Moreover, energy traders largely stuck to the sidelines, awaiting today’s OPEC+ ministerial meeting and the carte’s response to the latest twist in the global health scare.

On the New York Mercantile Exchange, WTI crude futures lost 61 cents, or 0.9%, to settle at $65.57 a barrel.

Below we review the EIA's Weekly Petroleum Status Report for the holiday-shortened week ending Nov 26.

Analyzing the Latest EIA Report

Crude Oil: The federal government’s EIA report revealed that crude inventories fell 909,000 barrels compared to expectations of a 2.7-million-barrel decrease per the analysts surveyed by S&P Global Platts. An uptick in exports primarily accounted for the stockpile draw with the world’s biggest oil consumer even as higher production and imports limited the quantum of decline. Total domestic stocks now stand at 433.1 million barrels — 11.3% less than the year-ago figure and 6% lower than the five-year average.

On a somewhat bearish note, the latest report showed that supplies at the Cushing terminal (the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange) were up 1.2 million barrels to 28.5 million barrels.

Meanwhile, the crude supply cover was down from 28.3 days in the previous week to 27.9 days. In the year-ago period, the supply cover was 35.1 days.

Let’s turn to the products now.

Gasoline: Gasoline supplies increased for the first time in eight weeks. The 4 million-barrel addition is attributable to lower demand and higher imports. Analysts had forecast that gasoline inventories would rise by 900,000 barrels. At 215.4 million barrels, the current stock of the most widely used petroleum product is 7.8% less than the year-earlier level and 5% below the five-year average range.

Distillate: Distillate fuel supplies (including diesel and heating oil) rose last week after falling for three weeks in a row. The 2.2 million barrel increase primarily reflected higher production and a pullback in demand. Meanwhile, the market looked for a supply climb of 1 million barrels. Current inventories — at 123.9 million barrels — are 15.1% below the year-ago level and 9% lower than the five-year average.

Refinery Rates: Refinery utilization, at 88.8%, moved up 0.2% from the prior week.

Final Words

WTI settled lower yesterday, following builds in gasoline and distillate inventories due to a decrease in consumption. Fears of a slowdown in oil demand recovery amid detection of the first case of Omicron in the United States also dragged down the commodity on Wednesday. Traders remain wary that the spread of the newest variant of coronavirus will spur a flurry of renewed curbs by governments to check its transmission, posing a risk to demand.

While there are reasons to be cautious, the overall Oil/Energy market looks well-positioned with a supportive macro backdrop and robust fundamentals. Widespread COVID-19 vaccine rollouts, the ongoing government stimulus and the OPEC+ cartel’s calibrated production policy have contributed to this positive setup.

Crude supplies recently fell to their lowest levels since October 2018, with U.S. commercial stockpiles down nearly 14% since mid-March. Taking Cushing as an indicator, the oil market has already tightened considerably. Stocks fell to 26.4 million barrels at the key storage hub last month, the lowest in more than three years. There is also a marked improvement in fuel demand on the back of rebounding road and airline travel. In fact, strong consumption of gasoline pushed inventories to the lowest level in four years just last week.

To take advantage of oil’s robust outlook, one might build a position by tapping into the below-mentioned Zacks Rank #1 (Strong Buy) oil companies.

You can see the complete list of today’s Zacks #1 Rank stocks here.

ConocoPhillips COP: The company has a projected earnings growth rate of 710.3% for the current year. The Zacks Consensus Estimate for ConocoPhillips’ current-year earnings has been revised 21.8% upward over the last 60 days.

ConocoPhillips beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 13%. COP shares have gained around 78.5% in a year.

EOG Resources EOG: The company has a projected earnings growth rate of 495.2% for the current year. EOG Resources’ consensus estimate for the current year has been revised 15.9% upward over the last 60 days.

The oil and gas finder beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 29.8%. EOG has rallied around 84.8% in a year.

Suncor Energy SU: The company has an expected earnings growth rate of 318.2% for the current year. The Zacks Consensus Estimate for Suncor Energy's current-year earnings has been revised 27% upward over the last 60 days.

Suncor Energy beat the Zacks Consensus Estimate for earnings in two of the last four quarters but missed twice. SU has a trailing four-quarter earnings surprise of roughly 7.5%, on average. The Canadian oil behemoth has rallied around 48.1% in a year.

Diamondback Energy FANG: The company has a projected earnings growth rate of 269.7% for the current year. Diamondback Energy’s consensus estimate for the current year has been revised 11.3% upward over the last 60 days.

FANG beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 11.7%. Diamondback Energy has rallied around 159.5% in a year.

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