Oil At 6-Month High Even As More Producers Go Bankrupt

The U.S. Energy Department's weekly inventory release showed that crude stockpiles recorded a surprise fall from their all-time high levels. The report further revealed that refined product inventories – gasoline and distillate – both decreased from their previous week levels too.

As a result, West Texas Intermediate (WTI) crude futures jumped 3.5% (or $1.57) to settle at $46.23 per barrel Wednesday – the highest in more than six months.

This also prompted investors to increase their exposure to oil and related support plays. Market heavyweights like Marathon Oil Corp. (NYSE:MRO) , National Oilwell Varco Inc. (NYSE:NOV) , ConocoPhillips (NYSE:COP) , Anadarko Petroleum Corp. (NYSE:APC) and Apache Corp. (NYSE:APA) all experienced gains in yesterday’s trading.

More Companies Bite the Dust as Supplies Remain Ample

Despite the fall in crude inventories, topping 500 million barrels, it’s still near levels not seen since the 1930s. What’s more, supplies at the Cushing, Oklahoma storage hub jumped to another all-time high.

While a brief rally has helped U.S. oil price rebound from its 12-year low of $26.21 reached in Feb, at slightly over $45 a barrel they still remain around 30% down from 2015 highs and far below the breakeven price for many energy companies.

This has forced many domestic crude producers to enter bankruptcy since early 2015, the latest in the list being Linn Energy LLC (NASDAQ:LINE) and Penn Virginia Corp. With oil-driven financial woes taking their toll, both upstream players have filed for Chapter 11 bankruptcy protection,

Analysis of the EIA Data

Crude Oil: The federal government’s EIA report revealed that crude inventories decreased by 3.41 million barrels for the week ending May 6, 2016, following a rise of 2.78 million barrels in the previous week.

The analysts surveyed by S&P Global Platts – the leading independent commodities and energy data provider – had expected crude stocks to go up by 300,000 barrels. Lower production – now at their lowest level since Oct 2014 – and higher refinery net input led to the surprise stockpile drawdown with the world's biggest oil consumer.

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 – were up 1.52 million barrels from the previous week’s level to a new all-time high of 67.81 million barrels.

Despite the second inventory decline in 13 weeks, at 539.98 million barrels, current crude supplies are up 11% from the year-ago period and are at the highest level during this time of the year.

The crude supply cover was down from 34.0 days in the previous week to 33.7 days. In the year-ago period, the supply cover was 30.1 days.

Gasoline: Supplies of gasoline were down for the first time in 3 weeks as demand strengthened and imports fell. The 1.23 million barrels draw – more than analysts’ polled number of 800,000 barrels decrease in supply level – took gasoline stockpiles down to 240.56 million barrels. Despite last week’s decline, the existing stock of the most widely used petroleum product is 6% higher than the year-earlier level and is comfortably above the upper half of the average range.

Distillate: Distillate fuel supplies (including diesel and heating oil) fell 1.65 million barrels last week, easily outpacing analysts’ expectations for a 1.3 million barrels drop in inventory level. The decrease in distillate fuel stocks – the fourth in successive weeks – could be attributed to stronger demand. But at 155.33 million barrels, distillate supplies are still 21% higher than the year-ago level and are above the upper half of the average range for this time of the year.

Refinery Rates: Refinery utilization was down by 0.6% from the prior week to 89.1%.

About the Weekly Petroleum Status Report

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.