Crude Oil Inventory Drops Sharply, Driving Prices Higher

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The U.S. Energy Information Administration (EIA) released its weekly petroleum status report Wednesday morning. U.S. commercial crude inventories decreased by 4.5 million barrels last week, maintaining a total U.S. commercial crude inventory to 362.5 million barrels, and they remain above upper limit of the five-year range for this time of the year.

Total gasoline inventories increased by 600,000 barrels last week and remain in the middle of the five-year average range. Total motor gasoline supplied (the EIA’s measure of consumption) averaged more than 9 million barrels a day for the past four weeks, down by 2%, compared with the same period a year ago.

Distillate inventories dropped by 1 million barrels last week, and remain below the lower limit of the average range. Distillate product supplied averaged about 4 million barrels a day over the past four weeks, up by 5.5% when compared with the same period last year. Distillate production averaged 4.9 million barrels a day last week, up by 200,000 barrels a day, compared with the prior week’s production.

Tuesday evening, the American Petroleum Institute (API) reported that crude inventories fell by 1.4 million barrels in the week ending August 15, together with a drop of 2.1 million barrels in gasoline supplies and a decrease of 586,000 barrels in distillate supplies. For the same period, analysts estimated a decrease of 900,000 barrels in crude inventories, a decrease of 1.3 million barrels in gasoline inventories and a drop of 700,000 barrels in distillate inventories.

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Before the EIA report, West Texas Intermediate (WTI) crude was trading up at around $95.55 a barrel, about 1.1% above Tuesday’s closing price of $94.48. The WTI price rose further to around $95.75 a barrel shortly after the report was released.

For the past week, crude imports averaged more than 7.5 million barrels a day, down by about 387,000 barrels a day over the previous week. Refineries were running at 93.4% of capacity, with daily input of about 16.4 million barrels a day, about 204,000 barrels a day above the previous week’s average.

Gasoline demand continues to slow, and the drop in crude oil inventories likely represents an effort by producers to slow, if not stop, the downtrend in prices. That could be a losing battle, barring further geopolitical disturbances, simply as a result of the fact that futures contracts for crude are virtually all long, meaning that either some fresh long money has to enter the market to drive up prices or somebody has to do something stupid. Counting on either one is not a good investment.

According to AAA, the current national average pump price per gallon of regular gasoline is $3.441, down from $3.473 a week ago and from $3.578 a month ago. Last year a gallon of regular cost $3.537 on average in the United States.

Here is a look at how share prices at three U.S. producers are reacting to the latest report.

Exxon Mobil Corp. (NYSE: XOM) traded down about 0.3%, at $99.17 in a 52-week range of $84.79 to $104.76.

Chevron Corp. (NYSE: CVX) traded down 0.6%, at $126.85 in a 52-week range of $109.27 to $135.10.

Continental Resources Inc. (NYSE: CLR) traded down about 0.2%, at $147.72 in a 52-week range of $91.28 to $159.24. Continental is the largest producer in the Bakken shale play and reported softer than expected results Wednesday morning.

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