Crude Oil Price Bounces Around Following Inventory Report

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The U.S. Energy Information Administration (EIA) released its weekly petroleum status report Wednesday morning, showing that U.S. commercial crude inventories increased by 900,000 barrels last week, maintaining a total U.S. commercial crude inventory of 457.3 million barrels. The commercial crude inventory has dipped into the upper half of the average range for this time of year.

Tuesday evening the American Petroleum Institute (API) reported that crude inventories rose by 519,000 barrels in the week ending October 20. API also reported gasoline supplies tumbled by 5.75 million barrels and distillate inventories fell by 4.95 million barrels. For the same period, analysts had consensus estimates for a decrease of 2.55 million barrels in crude inventories and decreases of 1.9 million barrels each in gasoline and distillate stockpiles.

Total gasoline inventories fell by 5.5 million barrels last week, according to the EIA, and remain in the upper half of the five-year average range. U.S. refineries produced over 9.9 million barrels of gasoline a day last week, down about 100,000 barrels a day compared to the prior week. Total motor gasoline supplied (the agency’s proxy for demand) averaged 9.3 million barrels a day for the past four weeks, roughly flat compared with the prior week.

Since the beginning of the year, U.S. crude oil inventories have dropped by 23 million barrels. To the same point in 2016, inventories had risen by 19 million barrels. Over the past 10 years, the average for the first nine months of a year is an addition of 24 million barrels to the nation’s stockpile of crude.

Spot prices for near-term delivery of West Texas Intermediate (WTI) (June 2018) have fallen to just $0.26 a barrel above front-month (December 2017) delivery. This market signal indicates that supply and demand are returning to balance and that crude oil prices could continue to rise for the rest of the year.

Spot prices for benchmark Brent crude rose above futures prices last month and remain there. Over the past two years, the global stockpiles have fallen enough to create more near-term demand and that, in turn, has lifted spot prices.

With U.S. rig counts continuing to decline and demand slightly higher, it seems reasonable to expect U.S. inventories to fall further and for crude prices to rise. The fly in the ointment may be exports that have boomed as WTI continues to trade at around a $6 per barrel discount to Brent. As long as producers can get their crude to the Gulf or East Coast and still make a profit, exports will act as a counterweight to higher prices.

Before the EIA report, WTI crude for December delivery traded down about 0.6% at around $52.22 a barrel, and it traded at $52.16 shortly after the report’s release, before ticking back up slightly. WTI settled at $52.47 on Tuesday and opened at $52.56 Wednesday morning. The 52-week range on December futures is $43.08 to $58.44.

Distillate inventories decreased by 5.5 million barrels last week and have moved up into the upper half of the average range for this time of year. Distillate product supplied averaged 3.8 million barrels a day over the past four weeks, down by 6.5% compared with the same period last year. Distillate production averaged 4.8 million barrels a day last week, roughly flat compared to the prior week’s production.

For the past week, crude imports averaged over 8.1 million barrels a day, up by about 640,000 barrels a day compared with the previous week. Refineries were running at 87.8% of capacity, with daily input averaging over 16 million barrels a day, about 586,000 barrels a day more than the previous week’s average.

Week over week, U.S. crude oil exports rose by 126,000 barrels a day last week and U.S. production rose by a whopping 1.1 million barrels a day. Exports of refined products rose by 691,000 barrels a day last week to 5.74 million barrels a day. It’s no wonder inventories of gasoline and distillates dropped sharply.

According to AAA, the current national average pump price per gallon of regular gasoline is $2.459, down less than a penny from $2.461 a week ago and down nearly 12 cents per gallon compared with the month-ago price. Last year at this time, a gallon of regular gasoline cost $2.225 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 0.1%, at $83.39 in a 52-week range of $76.05 to $93.22. Over the past 12 months, Exxon stock has traded down about 3.8%.

Chevron Corp. (NYSE: CVX) traded down about 0.3%, at $118.89 in a 52-week range of $99.87 to $120.89. As of last night’s close, Chevron shares are trading up about 18.3% over the past 12 months.

The United States Oil ETF (NYSEAMERICAN: USO) traded down about 0.5%, at $10.49 in a 52-week range of $8.65 to $12.00.

The VanEck Vectors Oil Services ETF (NYSEAMERICAN: OIH) traded down about 0.8%, at $23.21 in a 52-week range of $21.70 to $36.35.