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U.S. Crude Climbs After EIA Reports Drop in Production

The U.S. Energy Department's inventory release showed that crude stockpiles recorded an unexpected build. The report further revealed that refined product inventories – gasoline and distillate – both decreased from their previous week levels. However, the talking point from the data sets was the fall in domestic oil production that continues to be the biggest headwind for the market. As a result, West Texas Intermediate (WTI) crude futures added 1.1% (or 50 cents) to $44.74 per barrel Wednesday.

Energy Stocks Gain

The federal data sparked encouraged some buying in energy stocks, which lifted the Energy Select Sector SPDR – an assortment of the largest U.S. energy companies – almost 0.6% Wednesday.

The two energy representatives in the 30-stock Dow Jones industrial average, ExxonMobil Corp. XOM and Chevron Corp. CVX also inched up. Meanwhile, some of the biggest gainers of the S&P 500 yesterday were oil and oil-related companies like Murphy Oil Corp. MUR, Apache Corp. APA, The Williams Companies Inc. WMB and Hess Corp. HES.

Analysis of the EIA Data

Crude Oil: The federal government’s EIA report revealed that crude inventories increased by 118,000 barrels for the week ending June 23, 2017, following a decline of 2.45 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 2.6 million barrels. A pullback in refinery crude runs and uptick in imports led to the surprise stockpile build with the world's biggest oil consumer even as domestic production edged lower.

Importantly, 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 297,000 barrels from previous week’s level to 60.84 million barrels.

The second inventory increase in 12 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 509.21 million barrels, current crude supplies are up 2.7% from the year-ago period and are in the upper limit of the average range during this time of the year.

The crude supply cover was up from 29.5 days in the previous week to 29.7 days. In the year-ago period, the supply cover was 31.9 days.

Gasoline: Supplies of gasoline were down for the second successive week as imports fell. The 894,000 barrels draw – more than the polled number of 583,000 barrels fall in supply level – took gasoline stockpiles down to 240.97 million barrels. Despite recent decreases, the existing stock of the most widely used petroleum product is still sitting 0.8% 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) went down by 223,000 barrels last week on modestly lower production, contrary to analysts’ expectations for 453,000 barrels increase in supply level. Despite past week’s decrease in distillate fuel stocks – the first in 5 weeks – at 152.27 million barrels, supplies are 1.2% higher than the year-ago level and are over the upper limit of the average range for this time of the year.

Refinery Rates: Refinery utilization was down by 0.4% from the prior week to 92.5%.

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. 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 $1.31, representing some 725% earnings per share growth over 2016. Next year’s average forecast is $2.52, pointing to another 92% growth.

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