Oil Prices Fall as Supplies Rise to Their Highest Level Ever

US oil prices fell on Wednesday after the release of the Department of Energy inventories showed a surprising addition to crude stocks that brought it to a new record high. On the New York Mercantile Exchange, WTI crude lost 42 cents, or 1.1%, in July, at $ 37.96 a barrel.

Analysis of the latest EIA report

Below we read the weekly Petroleum Status Report of the UVP for the week until June 12th.

Crude Oil: The Federal Government's EIA report found that crude oil stocks rose 1.2 million barrels, versus expectations of a 3.5 million barrel decline. This brings total domestic inventories to 539.3 million barrels - the highest in existence, 11.8% above the previous year and 15% above the five-year average.

Meanwhile, oil prices were based on inventory at the Cushing terminal in Oklahoma. As the central delivery hub for US crude oil futures traded on the New York Mercantile Exchange, inventories decreased by 2.6 million barrels to 46.8 million barrels.

Crude oil supplies declined from 40.9 days in the previous week to 40.4 days. In the same period of the previous year, coverage was 28.4 days.

Let us now turn to the products.

Gasoline: Gasoline supplies decreased for the first time in three weeks. The 1.7 million barrel decline in fuel is comparable to analysts' forecast of 2.2 million barrels. At 257 million barrels, the current stock of the most commonly used petroleum product is 10.2% above the previous year's level and 10% above the five-year average.

Distillate: Distillate fuel supply (including diesel and heating oil) declined by 1.4 million barrels after ten consecutive weeks. In the meantime, the market had been looking to build a supply of 3.1 million barrels. At 174.5 million barrels, the current supply is 36.5% above the previous year's level and 28% above the five-year average.

Refining rates: Refinery utilization rose by 0.7% compared to the previous week to 73.8%.

Conclusion

The increase in crude oil stocks surprised the market, which expected a decline due to easing measures. Deliveries are now at the highest weekly level ever, surpassing the all-time high of 538.1 million barrels reached last week.

On a positive note, the oil continued to decline at the Cushing storage node. The report also supported the reduction in business by US manufacturers. Weekly numbers show that production has dropped to 10.5 million barrels a day - the lowest since 2018 - since reaching 13.1 million in the second week of March.

In particular, the volume from the U.S. catchment area number one - Permian - will decrease by 7,000 barrels a day to 4.3 million barrels a day in July - the third month of the decline - like Diamondback Energy FANG, Cimarex Energy , Concho Resources CXO, Pioneer Natural Resources PXD and others are investing much less money in the unconventional game in 2020.

Another optimistic news was the decline in product inventories. The special thing is that after ten consecutive weeks of construction to the highest level since 2010, the distillate stocks finally decreased.

Regardless of the bullish data in the report, investors are still concerned about the supply flood. Overall, US commercial inventories have increased more than 19% since March, while domestic fuel demand, although improving, remains weak.

Here too, despite renewed increases in refinery runs, US capacity utilization is not too far from its lowest level ever. Downstream operators such as Valero Energy VLO, Marathon Petroleum MPC and Phillips 66 PSX, all of which have a Zacks 3rd rank (hold), have dramatically reduced processing capacity to cope with the erosion of demand caused by efforts to curb the spread of the corona virus becomes. Demand has still not risen to a level where operators are considering resuming / increasing their refinery work.

The full list of today's Zacks # 1 Rank (Strong Buy) stocks can be found here.

As evidence of the destruction in demand, the EIA estimates that U.S. oil consumption will decrease by 2.4 million barrels a day to 18.06 million barrels a day in 2020. On the other hand, the Paris-based International Energy Agency (IEA) assumes that global crude oil consumption will decrease by 8.1 million barrels a day to 91.7 million barrels a day in 2020.

Given these factors, while the expansion of OPEC + production cuts most likely resulted in a price floor, serious questions remain about the future direction of the oil.

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Valero Energy Corporation (VLO): Free stock analysis report

Pioneer Natural Resources Company (PXD): Free stock analysis report

Concho Resources Inc. (CXO): Free stock analysis report

Phillips 66 (PSX): Free stock analysis report

Marathon Petroleum Corporation (MPC): Free stock analysis report

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