U.S. Oil Ends Lower Even As EIA Reveals Drop In Inventories

Oil finished lower on Wednesday even as a U.S. government report revealed a weekly decrease in domestic crude supplies that was much larger than anticipated. While EIA reported a fourth straight weekly inventory decline, crude prices fell $1.65 (or 2.9%) to $55.75 a barrel, after OPEC cut its forecast for oil demand growth this year and next. Reports that President Donald Trump may soften his stance against Iran resulted in further downside.

Most energy stocks posted losses in reaction to oil’s descent yesterday. Among the supermajors, ExxonMobil (NYSE:XOM) shares fell 0.2%, Chevron (NYSE:CVX) retreated 0.5%, BP plc (NYSE:BP) was down 0.1%, while Royal Dutch Shell (LON:RDSa) RDS.A fell 0.6%.

Analysis of the EIA Data

Crude Oil: The federal government’s EIA report revealed that crude inventories fell by 6.9 million barrels for the week ending Sep 6, compared with the 3.6 million barrels drawdown that energy analysts had expected. A combination of lower imports and higher refinery runs largely drove the larger-than-expected stockpile decline with the world's biggest oil consumer. This puts the total domestic stocks at 416.1 million barrels – 5% above the year-ago figure and 2% lower than the five-year average.

In particular, the Cushing terminal in Oklahoma – the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange – saw inventories decline 798,000 barrels to 39.3 million barrels – the lowest since November.

The crude supply cover was down from 24.2 days in the previous week to 23.8 days. In the year-ago period, the supply cover was 22.3 days.

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

Gasoline: Gasoline supplies edged down 682,000 barrels as demand for the fuel increased by 336,000 barrels per day to 9.8 million barrels per day. Analysts had forecast 1.4 million barrels decline. At 228.9 million barrels, the current stock of the most widely used petroleum product is 3% below the year-earlier level but exceeds the five-year average range by 3%.

Distillate: Distillate fuel supplies (including diesel and heating oil) were up 2.7 million barrels last week on lower demand and higher production, while analysts were looking for an inventory addition of 220,000 barrels. Current supplies – at 136.2 million barrels – are 2.2% lower than the year-ago level and remain 6% below than the five-year average.

Refinery Rates: Refinery utilization was up 0.3% from the prior week to 95.1%.

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.

The data from EIA generally acts as a catalyst for crude prices and affect producers, such as ExxonMobil, Chevron and ConocoPhillips (NYSE:COP) – all carrying Zacks Rank #3 (Hold) – and refiners such as Valero Energy (NYSE:VLO) , Phillips 66 (NYSE:PSX) and Marathon Petroleum (NYSE:MPC).

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