Crude Oil Price Jumps on Big Drops in Crude, Gasoline Stockpiles

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The U.S. Energy Information Administration (EIA) released its weekly petroleum status report Thursday morning, one day later than usual due to the Independence Day holiday. U.S. commercial crude inventories decreased by 6.3 million barrels last week, maintaining a total U.S. commercial crude inventory of 502.9 million barrels. The commercial crude inventory remained in the upper half of the average range for this time of year.

Wednesday evening the American Petroleum Institute (API) reported that crude inventories fell by 5.8 million barrels in the week ending June 30. API also reported gasoline supplies decreased by 5.7 million barrels and distillate inventories increased by 400,000 barrels. For the same period, a Wall Street Journal survey of analysts had consensus estimates for a decrease of 2.5 million barrels in crude inventories, a reduction of 1.4 million barrels in gasoline inventories and a slide of 100,000 barrels in distillate stockpiles.

Total gasoline inventories decreased by 3.7 million barrels last week, according to the EIA, but remain near the upper limit of the five-year average range. U.S. refineries produced about 10.4 million barrels of gasoline a day last week, up by about 100,000 barrels a day compared to the prior week. Total motor gasoline supplied (the agency’s proxy for demand) averaged 9.6 million barrels a day for the past four weeks, down by 1.8% compared with the same period a year ago.

Until Wednesday’s sharp drop in crude prices, markets had experienced eight consecutive days of price hikes for the August contracts. That may have been partly due to an expected increase in demand for refined products ahead of the U.S. Independence Day holiday, unexpected production increases from Nigeria and Libya, and reservations about the effectiveness of the production cuts spearheaded by Saudi Arabia and its OPEC partners.

It is equally, if not more, likely that the price run-up was the result of a week-long short covering trade. According to Reuters analyst John Kemp, hedge funds and other money managers held short positions on 510 million barrels of crude, gasoline and heating oil on June 27. Positions were slightly bearish in gasoline and heating oil, but the net long position in crude oil was 357 million barrels, down from 589 million barrels in May and a record 951 million barrels in February.

Kemp also reported that fund managers had increased their short positions by 86 million barrels over the past four weeks, noting:

The critical question for the market is how many of those short positions have been closed out and how many more are still open.

If many of the extra short positions have been closed, prices are likely to stabilise around current levels, but if most remain open, upward pressure is likely to continue.

Before the EIA report, benchmark West Texas Intermediate (WTI) crude for August delivery traded up about 1.5% at around $45.77 a barrel, and it jumped to around $46.30 (up 2.6%) shortly after the report’s release. WTI settled at $45.13 on Wednesday and opened at $45.65 Thursday morning. The 52-week range on August futures is $42.06 to $58.30.

Distillate inventories decreased by 1.9 million barrels last week and remain above the upper limit of the average range for this time of year. Distillate product supplied averaged over 4.1 million barrels a day over the past four weeks, up by 5.8% compared with the same period last year. Distillate production averaged 5.1 million barrels a day last week, down about 100,000 barrels a day compared with the prior week’s production.

For the past week, crude imports averaged over 7.7 million barrels a day, down by about 274,000 barrels a day compared with the previous week. Refineries were running at 93.6% of capacity, with daily input averaging over 17.1 million barrels a day, about 251,000 barrels a day more than the previous week’s average. Analysts were looking for refinery usage of 93.1% for the week.

Domestic crude oil production rose by 88,000 barrels week over week and is now 910,000 barrels a day higher than at the same time last year. Crude oil imports are down by 791,000 barrels a day year over year. Crude oil exports totaled 768,000 barrels a day last week, up by 170,000 barrels a day year over year. Gasoline production was up 2.18 million barrels a day year over year and distillate (diesel fuel and heating oil) production rose nearly 600,000 barrels a day compared to the same time last year. Refinery input rose more than 450,000 barrels a day year over year.

According to AAA, the current national average pump price per gallon of regular gasoline is $2.242, down half a penny from $2.247 a week ago and down more than 12 cents per gallon compared with the month-ago price. Last year at this time, a gallon of regular gasoline cost $2.264 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 down about 0.4%, at $80.49 in a 52-week range of $79.26 to $95.55. Over the past 12 months, Exxon stock has traded down about 14%.

Chevron Corp. (NYSE: CVX) traded down about 0.2%, at $104.46 in a 52-week range of $97.53 to $119.00. As of last night’s close, Chevron shares have added less than 0.1% over the past 12 months.

The United States Oil ETF (NYSEMKT: USO) traded up about 2.8%, at $9.51 in a 52-week range of $8.65 to $12.00.

The VanEck Vectors Oil Services ETF (NYSEMKT: OIH) traded down about 0.1%, at $24.73 in a 52-week range of $23.91 to $36.35.