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Massive Drop in Crude Supplies

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The U.S. Energy Department's weekly inventory release showed that crude stockpiles fell sharply, as imports tumbled even though production climbed to its highest level in 19 years. The report further revealed that refined product inventories – gasoline and distillate – increased from their previous week levels on weakening demand.

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, such as ExxonMobil Corp. (XOM), Chevron Corp. (CVX), ConocoPhillips (COP), Valero Energy Corp. (VLO) and Tesoro Corp. (TSO).

Analysis of the Data

Crude Oil: The federal government’s EIA report revealed that crude inventories fell by 11.12 million barrels for the week ending December 28, 2012, following a drop of 586,000 barrels in the previous week.

The analysts surveyed by Platts – the energy information arm of McGraw-Hill Companies Inc. (MHP), had expected oil stocks to go down some 1 million barrels. A sharp drop in the level of imports led to the massive stockpile drawdown with the world's biggest oil consumer even as domestic production continued to spike, now at their highest level since 1993.

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 – climbed 573,000 barrels from the previous week’s level to hit a new all-time high of 49.75 million barrels.

At 359.94 million barrels, current crude supplies are 9.2% above the year-earlier level, and comfortably exceed the upper limit of the average for this time of the year. The crude supply cover was down from 24.0 days in the previous week to 23.4 days. In the year-ago period, the supply cover was 22.5 days.

Gasoline: Supplies of gasoline were up for the sixth time in as many weeks, as domestic consumption fell. This was partially offset by lower imports and production.

The 2.57 million barrels gain – slightly ahead of the analysts’ projections for a 2.3 million barrels increase in supply level – took gasoline stockpiles up to 225.67 million barrels. As a result of this build, the existing inventory level of the most widely used petroleum product is 2.5% higher than the year-earlier level and is well above the upper half of the average range.

Distillate: Distillate fuel supplies (including diesel and heating oil) jumped 4.57 million barrels last week, significantly higher than the analysts' expectations for a 1.6 million barrels build in inventory level. The rise in distillate fuel stocks – the fourth in 5 weeks – could be attributed to weaker demand, partially offset by lower production and imports.

At 123.97 million barrels, distillate supplies are 13.6% below the year-ago level and are under the lower limit of the average range for this time of the year.

Refinery Rates: Refinery utilization nudged up 0.1% from the prior week to 90.4%. The analysts were expecting the refinery run rate to go up by 0.45%.

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