Oil Prices Sink On Shock U.S. Crude Inventory Build

The U.S. Energy Department's inventory release showed that crude stockpiles recorded an unexpected build after eight straight weekly draws. On a further bearish note, the report revealed that refined product inventories – gasoline and distillate – both rose by significantly larger-than-expected amounts.

Following these bearish data sets, West Texas Intermediate (WTI) crude futures dived 5.1% (or $2.47) to $45.72 per barrel Wednesday – the lowest settlement since May 4.

Investors Dump Energy Stocks

The federal data sparked widespread selling in energy stocks, which pushed the Energy Select Sector SPDR – an assortment of the largest U.S. energy companies – down 1.41% Wednesday. Even the broad-based Dow Jones Industrial Average and the S&P 500 index felt pressure from the sharp drop in crude futures, gaining just 0.06% and 0.11% for the day, respectively.

The two energy representatives in the 30-stock Dow Jones industrial average, ExxonMobil Corp. (NYSE:XOM) and Chevron Corp. (NYSE:CVX) were down almost 0.4%. Meanwhile, the biggest casualties of the S&P 500 were Diamond Offshore Drilling Inc. (NYSE:DO) , Newfield Exploration Co. (NYSE:NFX) , Helmerich & Payne Inc. (NYSE:HP) and Anadarko Petroleum Corp. (NYSE:APC) , which slid 8%, 7%, 6% and 5.9%, respectively. In fact, such was the ferocity of the oil plunge that nine of the 10 worst-performing stocks in the index were all energy companies.

Analysis of the EIA Data

Crude Oil: The federal government’s EIA report revealed that crude inventories increased by 3.295 million barrels for the week ending Jun 2, 2017, following a decline of 6.43 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 down some 3.5 million barrels. A pullback in refinery crude runs from previous week’s record highs and jump in imports led to the surprise stockpile build with the world's biggest oil consumer even as domestic production edged lower.

The first inventory increase in nine weeks adds to the supply of excess oil in the U.S., though the year-over-year storage surplus has narrowed down considerably in recent months after a run of drawdowns. At 513.21 million barrels, current crude supplies are up 2.3% from the year-ago period and are in the upper limit of the average range during this time of the year.

However, stocks at the Cushing terminal in Oklahoma – the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange – was down 1.44 million barrels from previous week’s level to 63.38 million barrels.

The crude supply cover was, at 29.7 days, remained unchanged from the previous week. In the year-ago period, the supply cover was 32.6 days.

Gasoline: Supplies of gasoline were up for the first time in five weeks on weakening demand and higher imports. The 3.32 million barrels addition – way above polled number of 250,000 barrels rise in supply level – took gasoline stockpiles up to 240.35 million barrels. Following last week’s increase, the existing stock of the most widely used petroleum product is now 0.3% higher than the year-earlier level and is above the upper limit of the average range.

Distillate: Distillate fuel supplies (including diesel and heating oil) surged 4.36 million barrels last week, compared to the analysts’ expectations for an unchanged supply level. The second successive weekly increase in distillate fuel stocks could be attributed to lower demand. Despite past week’s increase in distillate fuel stocks, at 151.09 million barrels, supplies remain marginally lower than the year-ago level but are close to the upper limit of the average range for this time of the year.

Refinery Rates: Refinery utilization was down by 0.9% from the prior week to 94.1%.

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.

Stock to Buy

In case you are looking for energy names for your portfolio, one could opt for Canadian Natural Resources Ltd. (TO:CNQ) . It has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Calgary, Alberta-based Canadian Natural Resources is engaged in the acquisition, development and exploitation of crude oil and natural gas properties. The 2017 Zacks Consensus Estimate for this company is $1.30, representing some 720% earnings per share growth over 2016. Next year’s average forecast is $2.51, pointing to another 93% growth.

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