Oil surges higher thanks to another big reduction in inventories
US oil prices ended higher after a weekly report from the Energy Information Administration (“EIA”) revealed another large reduction in inventories. The seventh consecutive decline in national oil inventories was accompanied by a decrease in gasoline inventories. However, the commodity slashed some of its gains on uncertainties stemming from the stalled OPEC + meeting – a meeting that was delayed due to differences between the UAE and Saudi Arabia.
On the New York Mercantile Exchange, WTI crude futures contracts rose 74 cents or 1% to $ 72.94 per barrel.
Below, we review the EIA’s weekly State of Oil report for the week ending July 2.
Analysis of the latest EIA report
Crude oil: The federal government’s EIA report found that crude inventories fell 6.9 million barrels from expectations of a 6.2 million barrel drop according to analysts polled by S&P Global Platts. An increase in demand (or in the total of products supplied) coupled with a decrease in imports explains the greater than expected drawdown of stocks with the largest consumer of oil in the world. This brings the total national stocks to 445.5 million barrels, 17.4% lower than a year ago and 7% lower than the five-year average.
The latest report also showed supplies at the Cushing Terminal (the primary delivery hub for US crude futures traded on the New York Mercantile Exchange) were down 614,000 barrels to 39.6 million barrels.
Meanwhile, crude supply coverage fell from 28 days the previous week to 27.5 days. During the period of the previous year, supply coverage was 38.6 days.
Now let’s move on to products.
Gasoline: Gasoline supplies fell for the second time in three weeks. The 6.1 million barrels drop was due to increased demand even as production increased. Analysts had forecast gasoline inventories to drop 1.7 million barrels. At 235.5 million barrels, the current stock of the most widely used petroleum product is 6.4% below the previous year’s level and 2% below the five-year average range.
Distillate: Supplies of distillate fuel (including diesel and heating oil) increased by 1.6 million barrels, reflecting lower demand. Meanwhile, the market expected a supply gain of 1.4 million barrels. Despite construction, current inventories – at 138.7 million barrels – are 21.8% below their level a year ago and 6% below the five-year average.
Refinery prices: Refinery utilization, at 92.2%, was down 0.7% from the previous week.
While the OPEC + fiasco has raised many questions about the future trajectory of oil, oil traders remain very bullish on the commodity for now. Prices stabilized on Thursday as investors focused on improving fundamentals in the energy market. Crude supplies have fallen to pre-lockdown levels, with U.S. trading inventories falling more than 11% since mid-March. Taking Cushing as an indicator, the oil market has already tightened considerably. Inventories fell below 40 million barrels at the main storage facility last week, the lowest since March 2020. There has also been an improvement in demand for gasoline thanks to the rebound in road and air travel. This bodes well for oil prices in the second half of 2021.
With all favorable winds, Zacks’ oil / energy sector has significantly outperformed the S&P 500 Index. It has gained 23.3% so far this year compared to the 16.8% appreciation of the S&P 500. Therefore, five of the top 10 S&P 500 winners this year include energy-related names like Marathon Oil MRO, Diamondback Energy CROC, Devon Energy DVN, Western Oil OXY and EOG Resources EOG.
Marathon, ranked # 2 by Zacks (Buy), is the best performing energy value with a gain of 94.15%, followed by Diamondback (82.21%), Devon (78.35%), Occidental (71, 35%) and EOG (60.20%).
You can see The full list of today’s Zacks # 1 Rank stocks here.
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Devon Energy Corporation (DVN): Free Inventory Analysis Report
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