Things You Should Know About the EIA Crude Inventory Report

U.S. oil prices receded slightly on Wednesday after a weekly report from the Energy Information Administration ("EIA") showed a stockpile draw below expectations, while distillate inventories rose. On the New York Mercantile Exchange, WTI crude futures lost 38 cents, or 0.9%, to settle at $42.55 a barrel.

Analyzing the Latest EIA Report

Below we review the EIA's Weekly Petroleum Status Report for the week ending Aug 14.

Crude Oil: The federal government’s EIA report revealed that crude inventories fell by 1.6 million barrels compared to expectations of a 3.8 million barrel decline. A drop in U.S. Gulf Coast supplies amid a slowdown in imports accounted for the fourth-straight weekly stockpile draw with the world's biggest oil consumer. This puts total domestic stocks at 512.5 million barrels — 17.1% above the year-ago figure and 15% higher than the five-year average.

On a further positive note, the latest report 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) were down 607,000 barrels to 52.7 million barrels.

The crude supply cover was down from 35.4 days in the previous week to 35.1 days. In the year-ago period, the supply cover was 25.1 days.

Let’s turn to products now.

Gasoline: Gasoline supplies decreased for the second week in a row. The fuel’s 3.3 million barrel draw is attributable to higher exports, plus pullbacks in production and import. Analysts had forecast a decline of 2 million barrels. At 243.8 million barrels, the current stock of the most widely used petroleum product is 4.1% higher than the year-earlier level and 7% above the five-year average range.

Distillate: Distillate fuel supplies (including diesel and heating oil) increased for the 16th time in 20 weeks. The 152,000 barrels build reflected stuttering demand. Meanwhile, the market looked for a supply cut of 900,000 barrels. Current inventories — at 177.8 million barrels — are 28.7% higher than the year-ago level and 24% more than the five-year average.

Refinery Rates: Refinery utilization was down 0.1% from the prior week to 80.9%. 

Conclusion

Oil markets found support from the continued drop in crude inventories. Another piece of optimistic news was the fall in gasoline supplies, even though distillates stockpiles rose. The report was also supportive in terms of U.S. producers scaling back operations. Weekly figures show that output has dropped to 10.7 million barrels per day, since reaching 13.1 million in the second week of March. Another potential tailwind that came out of the report was a decline in storage at the Cushing hub, which had been rising since July.

The pockets of bullish data in the report notwithstanding, investors still remain worried of the supply glut. U.S. commercial stockpiles are up by more than 15% since March, while domestic fuel demand remains weak. In fact, EIA data shows total product supplied over the past four weeks falling 14.3% from the year-ago period.

Further, refinery utilization in the United States remains far below the usual capacity usage at this time of the year. Downstream operators including PBF Energy PBF, Valero Energy VLO and Phillips 66 PSX have drastically reduced processing capacity to cope with the demand erosion caused by efforts to stem the spread of the coronavirus. Demand has still not picked up to a level where the operators can think of restarting/increasing their refinery work. Meanwhile, Zacks Rank #3 (Hold) Marathon Petroleum MPC has announced plans to indefinitely stop production at its Gallup and Martinez refineries in response to collapsing product demand.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Further complicating things, crude’s rise from the bottom could also encourage the shale patch to ramp up or resume drilling activities. In fact, the sharp gains in the price have already prompted the likes of Continental Resources CLR, Pioneer Natural Resources PXD and Parsley Energy PE to plan a revival of production.  

As things stand right now, it appears that the oil market is facing serious questions about the future direction of the commodity.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.