Crude Oil Prices Cut Gains Following Surprise Inventory Buildup

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The U.S. Energy Information Administration (EIA) released its weekly petroleum status report Wednesday morning. U.S. commercial crude inventories increased by 1.6 million barrels last week, maintaining a total U.S. commercial crude inventory of 535.5 million barrels. The commercial crude inventory has now moved above the upper limit of the average range for this time of year.

Tuesday evening the American Petroleum Institute (API) reported that crude inventories fell by 1.3 million barrels in the week ending March 31. API also reported gasoline supplies decreased by 2.56 million barrels and distillate inventories decreased by 2.1 million barrels. For the same period, an S&P Global Platts survey of analysts had consensus estimates for a decrease of 200,000 barrels in crude inventories, a decline of 1.9 million barrels in gasoline inventories and a drop of 1.6 million barrels in distillate stockpiles.

Total gasoline inventories decreased by 600,000 barrels last week, according to the EIA, and remain in the upper half of the five-year average range. Total motor gasoline supplied (the agency’s measure of consumption) averaged 9.3 million barrels a day for the past four weeks, down by 0.6% compared with the same period a year ago.

Energy analysts at RBN Energy report that capital spending among the 43 oil and gas companies it tracks is expected to rise 42% year over year in 2017, a massive improvement over the 70% reduction we’ve seen in the past two years. The firm notes that despite lower crude prices, the upstream industry weathered the drop in crude prices that began in August of 2014 through a combination of high-grading (drilling in the most likely spots to find the most oil), capital discipline and cost-cutting.

RBN expects its E&P companies to spend $55.7 billion on capex this year, with gas-weighted firms boosting year-over-year spending by 59% and oil-weighted firms increasing spending by 47%. In 2014, these firms spent nearly $132 billion on capex.

And now for something completely different. Bloomberg’s Javier Blas has published a long article on Mexico’s “Hacienda Hedge,” an annual billion-dollar (or more) bet by the Mexican government on the direction of oil prices for the coming year.

In 2008, when crude was trading well north of $100, the Hacienda group hedged the country’s oil production for the next year, locking in prices from $66.50 to $87.00 a barrel on 330 million barrels of production. Crude prices averaged $55 a barrel in 2009 and Mexico pocketed more than $5 billion on the winning bet.

The whole story is fascinating and well worth the time to read.

Before the EIA report, benchmark West Texas Intermediate (WTI) crude for May delivery traded up about 1.3% at around $51.70 a barrel, and it slipped to $51.32 shortly after the report’s release. WTI crude settled at $51.03 on Tuesday. The 52-week range on May futures is $42.30 to $57.50.

Distillate inventories fell by 500,000 barrels last week but remain in the upper half of the average range for this time of year. Distillate product supplied averaged 4.2 million barrels a day over the past four weeks, up 13.9% compared with the same period last year. Distillate production averaged about 5 million barrels a day last week, up about 100,000 barrels a day compared with the prior week’s production.

For the past week, crude imports averaged about 7.9 million barrels a day, down by about 374,000 barrels a day compared with the previous week. Refineries were running at 90.8% of capacity, with daily input averaging over 16.4 million barrels a day, about 203,000 barrels a day more than the previous week’s average.

According to AAA, the current national average pump price per gallon of regular gasoline is $2.349, sharply higher than $2.291 a week ago and up 3.6 cents per gallon compared with the month-ago price. Last year at this time, a gallon of regular gasoline cost $2.052 on average in the United States.

Here is a look at how share prices for two blue-chip stocks and two exchange traded funds reacted to this latest report.

Exxon Mobil Corp. (NYSE: XOM) traded up about 0.9%, at $83.07 in a 52-week range of $80.31 to $95.55. Over the past 12 months, Exxon stock has traded down about 2.9% and is down more than 20% since August 2014, as of Tuesday’s close.

Chevron Corp. (NYSE: CVX) traded up about 1.2%, at $109.95 in a 52-week range of $92.43 to $119.00. As of last night’s close, Chevron shares have added about 1.4% over the past 12 months and trade down nearly 17% since August 2014.

The United States Oil ETF (NYSEMKT: USO) traded up about 0.4%, at $10.76 in a 52-week range of $8.99 to $12.45.

The VanEck Vectors Oil Services ETF (NYSEMKT: OIH) traded up about 1.9% to $31.25, in a 52-week range of $25.22 to $36.35.