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Making Sense of EIA's Latest Weekly Crude Inventory Report

U.S. oil prices moved higher on Sep 8 as compelling sector fundamentals overshadowed a weekly report from the Energy Information Administration ("EIA") showing builds in oil and fuel stockpiles.

On the New York Mercantile Exchange, WTI crude futures gained $1.60, or 2%, to settle at $89.27 a barrel.

Before going into the overall macro environment for oil, let's dig deep into the EIA's Weekly Petroleum Status Report for the week ending Sep 2.

Analyzing the Latest EIA Report

Crude Oil: The federal government’s EIA report revealed that crude inventories rose 8.8 million barrels compared to expectations of a 1.8 million-barrel decrease per the analysts surveyed by S&P Global Commodity Insights. The combination of an increase in imports, lower exports and weaker refinery demand accounted for the unexpected stockpile build with the world’s biggest oil consumer. Further, Washington released around 7.5 million barrels from its Strategic Petroleum Reserve (“SPR”).

Total domestic stocks now stand at 427.2 million barrels — 0.8% more than the year-ago figure but 3% lower than the five-year average.

The latest report also showed that supplies at the Cushing terminal (the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange) edged down 501,000 barrels to 24.8 million barrels.

Meanwhile, the crude supply cover increased from 25.5 days in the previous week to 26.4 days. In the year-ago period, the supply cover was 27.2 days.

Let’s turn to the products now.

Gasoline: Gasoline supplies increased for the first time in five weeks. The small, 333,000-barrel rise was attributable to a pickup in production and imports even as demand strengthened. Analysts had forecast that gasoline inventories would fall 1.5 million barrels. At 214.8 million barrels, the current stock of the most widely used petroleum product is 2.4% less than the year-earlier level and 6% below the five-year average range.

Distillate: Distillate fuel supplies (including diesel and heating oil) rose for the second week running. The modest 95,000-barrel addition primarily reflected an uptick in production. Meanwhile, the market looked for a supply draw of some 1.1 million barrels. Despite the recent increases, current inventories — at 111.8 million barrels — are 16.3% below the year-ago level and 23% lower than the five-year average.

Refinery Rates: Refinery utilization, at 90.9%, fell 1.8% from the prior week.

Final Word

WTI settled higher yesterday as investors look past the bearish EIA report (and familiar fears revolving around high inflation and slowing growth in the United States, China and Europe) instead of concentrating on oil’s tightening market dynamics.

Agreed, trading in the commodity is expected to be choppy, considering the central bank’s goal of squashing inflation and keeping expectations about future price gains in check. Risks stemming from recessionary fears, geopolitical tensions and dwindling liquidity will also lead to a rough road for equities.

As it is, the Oil/Energy market continues to enjoy support from geopolitical uncertainty amid Russia’s military operations in Ukraine. In March, crude prices surged to multi-year highs of $130 on concerns about supplies from Russia, which is one of the world's largest producers of the commodity. The U.S. and European Union’s ban on the import of Russian crude and energy products contributed to oil’s rapid price increase. While crude has pulled back from those lofty levels, with the conflict showing no sign of a quick resolution, the risk of dwindling inventory and the influential oil exporters’ group agreeing on a production curtailment, the commodity has enough reasons to stay elevated in the near-to-medium term.

While there are jitters over soaring inflation, stuttering economic growth and the probable addition of Iranian oil, these have been more than offset by the market’s precariously low level of spare capacity and a stretched-out refining system.

Even the fundamentals point to a tightening of the market. Per the latest government report, Despite a flood of SPR release, U.S. commercial stockpiles have been down some 3% from their five-year average for this time of year, prompted by a demand spike owing to the reopening of economies and a rebound in activity.

As a matter of fact, the Energy Select Sector SPDR — an assortment of the largest U.S. companies thronging the space — has risen nearly 42% year to date against a 16% loss for the broader S&P 500 benchmark.

Consequently, three of the top five gainers of the S&P 500 this year are all energy-related names: Occidental Petroleum OXY, Coterra Energy CTRA and Hess Corporation HES.

Occidental Petroleum: OXY is the top-performing S&P 500 stock in 2022, with a gain of 122.9%. Occidental Petroleum beat the Zacks Consensus Estimate for earnings in each of the last four quarters. It has a trailing four-quarter earnings surprise of 21.6%, on average.

OXY has a projected earnings growth rate of 331.4% for this year. The Zacks Consensus Estimate for Occidental Petroleum’s 2022 earnings has been revised 6.7% upward over the past 60 days.

Coterra Energy: This stock is among the best performers on the S&P 500 Index, with shares having appreciated 60.9% in 2022. CTRA, carrying a Zacks Rank #2 (Buy),  has a projected earnings growth rate of 121.3% for this year.

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

The Zacks Consensus Estimate for Coterra Energy’s 2022 earnings has been revised 11.4% upward over the past 60 days. CTRA’s expected EPS growth rate for three to five years is currently 55%, which compares favorably with the industry's growth rate of 31%.

Hess Corporation: Hess shares have appreciated 59.5% so far in 2022. HES, , has a projected earnings growth rate of 339.3% for this year.

The Zacks Consensus Estimate for Hess’ 2022 earnings has been revised 7.2% upward over the past 60 days. HES beat the Zacks Consensus Estimate for earnings in three of the trailing four quarters, the average being 7.1%.

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