Crude Oil Price Jumps on Large Inventory Drawdown

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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 decreased by 6.1million barrels last week, maintaining a total U.S. commercial crude inventory of 404.9 million barrels. The commercial crude inventory is about 3% below the five-year average for this time of year.

Tuesday evening the American Petroleum Institute (API) reported that crude inventories fell by 3.2 million barrels in the week ending July 20. Gasoline inventories decreased by 4.2 million barrels and distillate stockpiles fell by about 1.3 million barrels. For the same period, analysts expected crude inventories to decrease by about 2.3 million barrels. Gasoline inventories were seen down by 713,000 barrels and distillate inventories were expected to rise by 207,000 barrels.

In the futures and options markets, hedge fund managers fled their long positions in the six most-heavily traded petroleum contracts as if they were being chased by hyenas. The speculators reduced their long exposure by 178 million barrels in the seven-day period to July 17. According to John Kemp of Reuters, that’s the third-largest net long reduction since the first quarter of 2013. Net longs have now dropped below 1 billion barrels for the first time since last September. The hedgies are taking profits (short positions rose by just 8 million barrels) primarily on near-dated contracts. The crude market has returned to a contango position in which long-dated contracts are priced higher than current spot rates for crude.

Total gasoline inventories decreased by 2.3 million barrels last week, according to the EIA, and remained about 4% above the five-year average range. U.S. refineries produced about 10.3 million barrels of gasoline a day last week, down slightly compared to the prior week. Total motor gasoline supplied (the agency’s proxy for demand) averaged 9.7 million barrels a day for the past four weeks, about 100,000 barrels more compared with the prior week.

Before the EIA report, benchmark West Texas Intermediate (WTI) crude for September delivery traded up about 0.5% at around $68.85 a barrel, and it rose to around $69.28 (up about 1.1%) shortly after the report’s release. WTI settled at $68.52 on Tuesday and opened at $68.71 Wednesday morning. The 52-week range on September futures is $47.62 to $72.98.

Week over week, U.S. crude oil exports rose by 1.22 million barrels a day last week and U.S. production remained flat at 11 million barrels. Exports averaged 2.68 million barrels a day last week and have a cumulative daily average for the year of 1.85 million barrels a day, a 141% increase over the year-ago export total.

Distillate inventories fell by 100,000 barrels last week and are about 13% below the five-year average range for this time of year. Distillate product supplied averaged 4.1 million barrels a day for the past four weeks, down by about 1.1 million barrels a day compared with the prior week. Distillate production averaged 5.2 million barrels a day last week, up by about 1.3 million barrels a day compared to the prior week’s production.

For the past week, crude imports averaged 7.8 million barrels a day, down by 1.3 million barrels a day compared with the previous week. Refineries were running at 93.8% of capacity, with daily input averaging 17.3 million barrels a day, about 46,000 barrels a day more than the previous week’s average. Exports of refined products rose by 626,000 barrels a day last week to 5.37 million barrels a day.

According to AAA, the current national average pump price per gallon of regular gasoline is $2.846, down about two cents from $2.865 a week ago and essentially flat compared with the month-ago price. Last year at this time, a gallon of regular gasoline cost $2.281 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 0.3%, at $83.26 in a 52-week range of $72.16 to $89.30. Over the past 12 months, Exxon stock has traded up about 3.6%.

Chevron Corp. (NYSE: CVX) traded up about 0.6%, at $124.54 in a 52-week range of $104.20 to $133.88. As of last night’s close, Chevron shares are trading up about 19.3% over the past year.

The United States Oil ETF (NYSEARCA: USO) traded up about 1.0%, at $14.36 in a 52-week range of $9.34 to $15.25.

The VanEck Vectors Oil Services ETF (NYSEAMERICAN: OIH) traded down about 0.3%, at $24.77 in a 52-week range of $21.70 to $29.87.