Oil Gets A Lift From EIA Supply Data, Moves Back Above $50

Oil prices rose $1.14, or 2.3%, to $50.75 a barrel on Thursday, recovering slightly from the steep sell-off fueled by fears that the coronavirus outbreak in China would have a severe impact on oil demand.

U.S. Crude Benchmark Falls into a Bear Market

The commodity collapsed into a bear market earlier in the week, having plunged more than 20% from its 52-week high of $63.27 on Jan 6. In fact, the health scare, which has killed over 500 people so far and infected in excess of 28,000, was enough to send oil prices sliding below the psychologically important $50-a-barrel for the first time in more than a year.

Overall, the latest round of energy market selling comes amid heightened worries of the mysterious illness playing out like the 2003 SARS epidemic. Although it is quite difficult at this stage to assess the possible implications, according to Goldman Sachs (NYSE:GS), the deadly virus could lower oil demand by up to 260,000 barrels per day if it impacts passenger traffic due to travel restrictions.

The EIA Relief

It’s the U.S. Energy Department's latest inventory release that sent the market higher yesterday. The report revealed decrease in gasoline and distillate supplies, which more than offset the impact of higher-than-expected rise in crude stocks. Ahead of the EIA publication, oil prices had already been gaining strength on unconfirmed reports about the development of coronavirus vaccines that might stem the outbreak of the deadly strain. Crude price was also supported by indications that the OPEC+ group is preparing deeper output cuts to stem the decline.

Let’s review the EIA's Weekly Petroleum Status Report for the week ending Jan 31.

Crude Oil: The federal government’s EIA report revealed that crude inventories rose by 3.4 million barrels, compared to the 3 million barrels increase that energy analysts had expected. Tepid refinery activity drove the stockpile build with the world's biggest oil consumer even as U.S. production dropped from record levels. This puts the total domestic stocks at 435 million barrels – 2.7% below the year-ago figure and 2% lower than the five-year average.

The latest report also showed that supplies at the Cushing terminal in Oklahoma (the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange) was up 1.1 million barrels to 36.7 million barrels.

The crude supply cover was up from 25.9 days in the previous week to 26.5 days. In the year-ago period, the supply cover was 26.6 days.

Turning to products, and it is a fairly bullish story.

Gasoline:Gasoline supplies fell after increasing for 12 straight weeks. The fuel’s small drop (91,000 barrels to be precise) is attributable to higher demand. Analysts had forecast 1.9 million barrels climb. At 261.1 million barrels, the current stock of the most widely used petroleum product is 1.2% above the year-earlier level and exceeds the five-year average range by 4%.

Distillate: Distillate fuel supplies (including diesel and heating oil) were down for a third consecutive week. The 1.5 million barrels decrease could be attributed to strengthening demand. Meanwhile, the market had been looking for a supply draw of 100,000 barrels. Current supplies – at 143.2 million barrels – are 3% higher than the year-ago level but remain 4% below the five-year average.

Refinery Rates: Refinery utilization edged up 0.2% from the prior week to 87.4%.

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 United States, 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.

The data from EIA generally acts as a catalyst for crude prices and affect producers, such as ExxonMobil (NYSE:XOM) , Chevron (NYSE:CVX) and ConocoPhillips (NYSE:COP) and refiners such as Valero Energy (NYSE:VLO) and Marathon Petroleum (NYSE:MPC) .

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