US oil inventories drop for sixth week, fuel supplies rise

US oil prices rose on January 5 as lower domestic inventories offset the buildup in fuel inventories. A weekly report from the Energy Information Administration (“EIA”) showed the sixth straight drop in crude supplies. Easing concerns over the potential drop in demand related to Omicron and the OPEC+ cartel’s decision to stick with its planned easing of production cuts in February also boosted the commodity.

On the New York Mercantile Exchange, WTI crude futures gained 86 cents, or 1.1%, to settle at $77.85 a barrel, its highest since Nov. 24.

Going back to the week ending December 31, let’s take a look at the EIA’s weekly State of Oil report.

Analysis of the latest EIA report

Crude oil: The federal government’s EIA report found crude inventories fell 2.1 million barrels from expectations of a 4.4 million barrel drop according to analysts polled by S&P Global Platts. A pullback in imports and continued strength in refining demand explain the drawdown in inventories with the world’s largest consumer of oil, although lower exports and robust US production limited the quantum of decline. Total domestic inventories now stand at 417.9 million barrels, down 13.9% from a year ago and 8% below the five-year average.

On a somewhat bearish note, the latest report showed supplies at the Cushing Terminal (the main delivery center for US crude futures traded on the New York Mercantile Exchange) increased by 2.6 million barrels. at 37.3 million barrels.

Meanwhile, crude supply coverage fell from 26.7 days the previous week to 26.5 days. In the prior year period, supply coverage was 34.2 days.

Now on to the products.

Gasoline: Gasoline supplies increased for the second time in three weeks. The jump of 10.1 million barrels was attributable to significantly weaker demand and higher imports. Analysts had forecast gasoline inventories to rise by 1.9 million barrels. At 232.8 million barrels, the current inventory of the most widely used petroleum product is 3.4% below the level of the previous year and 4% below the five-year average.

distillate: Supplies of distillate fuel (including diesel and fuel oil) rose last week after falling the previous week. The increase of 4.4 million barrels mainly reflects weak demand. Current inventories – at 126.8 million barrels – are 19.9% ​​lower than a year ago and 16% lower than the five-year average.

Refinery tariffs: Refinery utilization, at 89.8%, edged up 0.1% from the previous week.

Last words

WTI hit a six-week high yesterday after crude inventories fell further. Despite some downside risks associated with demand issues induced by the Omicron variant, the oil and energy market has undoubtedly rebounded from the drop in consumption and prices caused by the 2020 pandemic.

Just recently, the four-week average for oil demand stood at a record high of 23.2 million barrels per day, indicating little cause for concern at this point. In contrast, US commercial inventories have fallen nearly 17% since mid-March. Additionally, it looks like fears of a slowdown in oil demand recovery from the Omicron variant are starting to fade, with the strain likely to be short-lived and less deadly than expected. At the same time, available vaccines could be effective in neutralizing it.

Tighter supply and demand prospects prompted OPEC+ to increase production to the 400,000 barrels per day forecast next month. The group seems reasonably confident about the trajectory of demand, which should be sufficient to absorb the additional crude.

To take advantage of the strong oil demand backdrop, one could position oneself by tapping into the Zacks Rank #1 (Strong Buy) oil companies mentioned below.

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

earth stone energy ESTE: Earthstone forecasts an earnings growth rate of 112.2% for next year. The Zacks consensus estimate for ESTE’s 2022 revenue has been revised up 49.3% in the past 60 days.

Earthstone has beaten the Zacks consensus estimate for earnings in each of the past four quarters, averaging 93.2%. ESTE shares have gained around 95.5% in one year.

Vermilion Energy VET: Vermilion Energy is valued at around $2 billion. The Zacks consensus estimate for VET income in 2022 has been revised up by 35.1% in the past 60 days.

Vermilion Energy has outperformed the Zacks consensus estimate by 54.4% on average over the past four quarters, including a 100% beat in the third quarter. VET shares have gained around 148.3% in one year.

United States MUSA: Murphy USA is valued at approximately $5.1 billion. The MUSA consensus estimate for 2022 has been revised up by 7.9% in the past 60 days.

MUSA has beaten the Zacks consensus estimate for earnings in three of the last four quarters, averaging 20.9%. Murphy USA has rebounded around 56.6% in one year.

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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.

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Felix J. Dixon