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Oil Reclaims $80 After EIA Reports Supply Draw on All Fronts

U.S. oil prices bounced back from an eight-month low after government data showed a weekly draw in crude, gasoline and distillate supplies.

A decline in stocks across the board together with a falling dollar and supply disruptions from Hurricane Ian saw the commodity rise above $80-a-barrel. However, it remained under pressure from recessionary fears.

On the New York Mercantile Exchange, WTI crude futures settled at $81.23 a barrel yesterday. Investors should know that oil slipped to a nine-month low of around $77 earlier in the week — the lowest since January.

Before going into the overall macro environment for oil, let's dig deep into the Energy Information Administration’s ("EIA") Weekly Petroleum Status Report for the week ending Sep 23.

Analyzing the Latest EIA Report

Crude Oil: The federal government’s EIA report revealed that crude inventories fell 215,000 barrels compared to expectations of a 300,000-barrel decrease per the analysts. The combination of a surge in exports, lower imports and a dip in domestic production accounted for the stockpile draw with the world’s biggest oil consumer even as refinery demand contracted.

Total domestic stocks now stand at 430.6 million barrels — 2.9% more than the year-ago figure but 2% lower 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) rose 692,000 barrels to 25.7 million barrels.

Meanwhile, the crude supply cover increased from 26.7 days in the previous week to 26.9 days. In the year-ago period, the supply cover was 28.2 days.

Let’s turn to the products now.

Gasoline: Gasoline supplies decreased for the second time in three weeks. The 2.4 million-barrel fall was primarily attributable to a surge in demand. Analysts had forecast that gasoline inventories would rise 900,000 barrels. At 212.2 million barrels, the current stock of the most widely used petroleum product is 4.3% less than the year-earlier level and 6% below the five-year average range.

Distillate: Distillate fuel supplies (including diesel and heating oil) dropped after rising for four weeks in a row. The 2.9 million-barrel fall reflected an uptick in demand and lower production. Meanwhile, the market looked for a supply draw of some 100,000 barrels. Despite the recent decreases, current inventories — at 114.4 million barrels — are 11.8% below the year-ago level and 20% lower than the five-year average.

Refinery Rates: Refinery utilization, at 90.6%, fell 3% from the prior week.

Final Word

WTI prices recently posted its longest run of weekly losses in 2022 following the Federal Reserve's decision to hike interest rates further in line with many other central banks across the world to step up the fight against soaring inflation. The tightening monetary policies have sparked concerns about a possible recession and, consequently, slowing crude demand. A stronger greenback, which can weaken dollar-denominated commodities like crude, also contributed to the downside.

What stands out is that rates may not have peaked yet, and more toughness could be in store for the remainder of this year and 2023. This is because attempts are being made to cool the 40-year high inflation and prevent it from becoming entrenched.

However, the U.S. benchmark has regained some ground in the wake of EIA’s bullish inventory report. Prices also drew support from the greenback’s climbdown from a 20-year high, which can strengthen dollar-denominated commodities like crude.

As it is, with the Russia-Ukraine conflict showing no signs of a quick resolution, the risk of dwindling inventory and the influential oil exporters’ group (OPEC+) agreeing on a production curtailment, the Oil/Energy market has enough reasons to stay elevated in the near-to-medium term.

As a matter of fact, the Energy Select Sector SPDR — an assortment of the largest U.S. companies thronging the space — has risen nearly 31% year to date against a 24% loss for the broader S&P 500 benchmark.

Consequently, three of the top five gainers of the S&P 500 this year are all energy-related names: Occidental Petroleum OXY, Marathon Petroleum MPC and Hess Corporation HES.

Occidental Petroleum: OXY is the top-performing S&P 500 stock in 2022, with a gain of 114%. Occidental Petroleum beat the Zacks Consensus Estimate for earnings in each of the last four quarters. It has a trailing four-quarter earnings surprise of 21.6%, on average.

OXY has a projected earnings growth rate of 331.8% for this year. The Zacks Consensus Estimate for Occidental Petroleum’s 2022 earnings has been revised 5.5% upward over the past 60 days.

Marathon Petroleum: This stock is among the best performers on the S&P 500 Index, with shares having appreciated 54% in 2022. MPC, carrying a Zacks Rank #1 (Strong Buy),  has a projected earnings growth rate of 788.6% for this year.

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

The Zacks Consensus Estimate for Marathon Petroleum’s 2022 earnings has been revised 14.6% upward over the past 60 days. MPC’s expected EPS growth rate for three to five years is currently 23%, which compares favorably with the industry's growth rate of 10.5%.

Hess Corporation: Hess shares have appreciated 47% so far in 2022. HES has a projected earnings growth rate of 309.1% for this year.

Hess, with a market capitalization of $33.5 billion, has a VGM Score opf B. HES beat the Zacks Consensus Estimate for earnings in three of the trailing four quarters, the average being 7.1%.

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