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U.S. Crude Price Rises on Big Inventory Drawdown

The U.S. Energy Department's inventory release showed that crude stockpiles recorded a sharp decline for the second week in a row. With its biggest fall in 10 months, domestic oil supplies have dropped below 500 million barrels for the first time since late January. Government figures also showed a surprise draw in gasoline inventories.

However, price gains were limited as the same report revealed that U.S. oil output kept rising - the biggest headwind for the market. As a result, West Texas Intermediate (WTI) crude futures added 1% (or 45 cents) to settle at $45.49 per barrel Wednesday.

Analysis of the EIA Data

Crude Oil: The federal government’s EIA report revealed that crude inventories fell by 7.56 million barrels for the week ending July 7, 2017, following a decline of 6.30 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 surge in refinery crude runs to near record highs and dip in imports led to the big stockpile draw with the world's biggest oil consumer even as domestic production continued to increase (now at their highest level since July 2015).

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 1.95 million barrels from previous week’s level to 57.56 million barrels, the lowest since November 2015.

While the twelfth inventory reduction in 14 weeks will further help narrow the year-over-year storage surplus, the U.S. still remains awash with excess oil. At 495.35 million barrels, current crude supplies are up 0.9% from the year-ago period and are in the upper half of the average range during this time of the year.

The crude supply cover was down from 29.4 days in the previous week to 29.0 days. In the year-ago period, the supply cover was 31.4 days.

Gasoline: Supplies of gasoline were down for the fourth successive week as demand strengthened and imports declined. The 1.65 million barrels draw – contrary to the polled number of 400,000 barrels rise in supply level – took gasoline stockpiles down to 235.66 million barrels. As a result of recent decreases, the existing stock of the most widely used petroleum product has now fallen 1.8% below the year-earlier level but is in the upper half of the average range.

Distillate: Distillate fuel supplies (including diesel and heating oil) went up by 3.13 million barrels last week, well ahead of analysts’ expectations for 1.2 million barrels increase in supply level. The fifth increase in 7 weeks could be attributed to weak demand. At 153.55 million barrels, current supplies are almost in line with 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 up by 0.9% from the prior week to 94.5%.

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.

The data from EIA generally acts as a catalyst for crude prices and affect producers, such as ExxonMobil Corp. XOM, Chevron Corp. CVX and ConocoPhillips COP, and refiners such as Valero Energy Corp. VLO, Phillips 66 PSX and Marathon Petroleum Corp. MPC. Each of these firms has a Zacks Rank #3 (Hold).

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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