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Large Inventory Build Puts Brakes on Oil's Rally

The U.S. Energy Department's weekly inventory release showed that crude stockpiles recorded a large increase to rise to another all-time high amid a sharp pullback in refinery crude runs. The report further revealed that distillate inventories increased from its previous week level. However, oil traders found some solace from a larger-than-expected gasoline draw.

As a result, West Texas Intermediate (WTI) crude futures’ 3-day rally came to an end, falling 1% (or 41 cents) to settle at $41.76 per barrel Wednesday.

This also prompted investors to decrease their exposure to oil and related support plays. Market heavyweights like Marathon Oil Corp. MRO, Weatherford International plc WFT, Hess Corp. HES, Anadarko Petroleum Corp. APC, Apache Corp. APA, Newfield Exploration Co. NFX and Noble Energy Inc. NBL all experienced losses in yesterday’s trading.

Analysis of the Data

Crude Oil: The federal government’s EIA report revealed that crude inventories increased by 6.63 million barrels for the week ending Apr 8, 2016, following a decline of 4.94 million barrels in the previous week.

The analysts surveyed by Platts – the energy information arm of McGraw-Hill Financial Inc. – had expected crude stocks to go up by 1 million barrels. Higher imports and sharply lower refinery usage led to the significantly larger-than-expected stockpile build with the world's biggest oil consumer.

However, crude inventories at the Cushing terminal in Oklahoma – the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange – were down 1.77 million barrels from the previous week’s level to 64.55 million barrels.

Following the eighth inventory rise in 9 weeks, at 536.53 million barrels, current crude supplies are up 11% from the year-ago period and are at the highest level during this time of the year.

The crude supply cover was up from 32.9 days in the previous week to 33.3 days. In the year-ago period, the supply cover was 30.5 days.

Gasoline: Supplies of gasoline were down for the seventh time in 8 weeks as demand strengthened, while production and imports fell. The 4.24 million barrels draw – more than analysts’ polled number of 1.9 million barrels decrease in supply level – took gasoline stockpiles down to 239.76 million barrels. Despite last week’s decline, the existing stock of the most widely used petroleum product is 5% higher than the year-earlier level and is comfortably above the upper half of the average range.

Distillate: Distillate fuel supplies (including diesel and heating oil) rose a modest 505,000 barrels last week. The increase in distillate fuel stocks – just the fourth in 8 weeks – took the tally to 163.49 million barrels. Supplies are 28% above the year-ago level and are well above the upper half of the average range for this time of the year.

Refinery Rates: Refinery utilization was down by 2.2% from the prior week to 89.2% as maintenance and turnarounds continue.

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.

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WEATHERFORD INT (WFT): Free Stock Analysis Report
APACHE CORP (APA): Free Stock Analysis Report
NEWFIELD EXPL (NFX): Free Stock Analysis Report
NOBLE ENERGY (NBL): Free Stock Analysis Report
ANADARKO PETROL (APC): Free Stock Analysis Report
HESS CORP (HES): Free Stock Analysis Report
MARATHON OIL CP (MRO): Free Stock Analysis Report
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