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Oil Rally Takes a Breather Amid Rising Fuel Inventories

Nilanjan Choudhury
·4-min read

U.S. oil prices hit a speed bump yesterday, as investors looked past the Energy Information Administration’s ("EIA") fifth successive weekly crude stockpile draw and turned their attention to the rising gasoline and distillate supplies.

On the New York Mercantile Exchange, WTI crude futures edged down 30 cents or 0.6%, to settle at $52.91 a barrel on Wednesday.

Below we review the EIA's Weekly Petroleum Status Report for the holiday-shortened week ending Jan 8.

Analyzing the Latest EIA Report

Crude Oil: The federal government’s EIA report revealed that crude inventories fell by 3.2 million barrels compared with expectations of a 3.8-million-barrel decrease. A spike in refinery demand primarily accounted for the stockpile draw with the world’s biggest oil consumer. This puts total domestic stocks at 482.2 million barrels — 12.5% more than the year-ago figure and 8% higher than the five-year average.

The latest report also showed that supplies at the Cushing terminal (the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange) decreased 2 million barrels to 57.2 million barrels.

Meanwhile, the crude supply cover was down from 34.2 days in the previous week to 33.6 days. In the year-ago period, the supply cover was 25.2 days.

Let’s turn to the products now.

Gasoline: Gasoline supplies increased for the second successive week. The 4.4-million-barrel build is attributable to rising refinery output. Analysts had forecast gasoline inventories to rise by 3.2 million barrels. At 245.5 million barrels, the current stock of the most widely used petroleum product is 5% lower than the year-earlier level but remains 1% above the five-year average range.

Distillate: Distillate fuel supplies (including diesel and heating oil) rose for the sixth time in seven weeks. The 4.8-million-barrel build reflected ramped-up refinery output. Meanwhile, the market looked for a supply increase of 2.8 million barrels. Current inventories — at 163.2 million barrels — are 10.9% higher than the year-ago level and 9% more than the five-year average.

Refinery Rates: Refinery utilization was up 1.3% from the prior week to 82%.

Wrap Up

Oil prices settled marginally lower on Wednesday to snap a six-session streak of gains as product inventories swelled, pointing to the weak fundamentals in the fuel market. A stronger greenback, which can weaken dollar-denominated commodities like crude, also contributed to the decline.

The commodity, however, had spent much of the past few months trading higher on continued vaccine-related developments that offer hopes for an earlier-than-expected pickup in the commodity’s demand. Currently trading near 11-month highs, crude has been driven up further by Saudi Arabia’s surprise pledge to reduce oil output by 1 million barrels per day in February and March.

The renewed enthusiasm can be gauged from the fact that the Zacks Oil/Energy sector has gained 40.7% in the past three months, handily outperforming the S&P 500 Index’s 9.7% appreciation.

In fact, some of the major gainers of the S&P 500 during this period include energy-related names like Occidental Petroleum OXY, Devon Energy DVN, Diamondback Energy FANG, Apache APA and Marathon Oil MRO. Occidental was the top-performing stock with a gain of 113.7%, followed by Devon (105.3%), Diamondback (101.9%), Apache (93.5%) and Marathon (91.4%). Meanwhile, the only energy representative in the 30-stock Dow Jones industrial average, Chevron CVX — carrying a Zacks Rank of #2 (Buy) — is up around 28%.

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


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Marathon Oil Corporation (MRO) : Free Stock Analysis Report
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