What to Make of Yesterday's Dramatic Drop in Oil Prices

US oil prices plummeted on Wednesday after the release of the Department of Energy inventories showed a surprising increase in crude stocks that brought it to a new record high.

In addition to the problems with oil, investors are still concerned about a second wave of coronavirus infections. With coronavirus infections and hospitalization increasing in several US states, there is concern that the country may be premature to reopen its economy. The resurgence in cases of the deadly pandemic could lead to a new lock, in which many companies have to close immediately after the reopening. In addition, this would raise doubts about the emerging recovery in oil demand.

International Monetary Fund data, which showed a worse than expected global economic collapse, also pushed prices down.

On the New York Mercantile Exchange, WTI crude lost $ 2.36, or 5.9%, in August, at $ 38.01 a barrel.

Analysis of the latest EIA report

Below we review the weekly UVP Petroleum Status Report for the week ending June 19.

Crude Oil: The Federal Government's EIA report found that crude oil reserves rose 1.4 million barrels, compared to expectations of a 100,000 barrel decline. A recovery in domestic production was primarily responsible for the surprising increase in inventories among the world's largest oil consumer. This brings total domestic inventories to 540.7 million barrels - the highest in existence, 15.1% above the previous year and 16% above the five-year average.

In the meantime, oil prices were based on further storage 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 991,000 barrels to 45.8 million barrels.

Crude oil supplies declined from 40.4 days in the previous week to 39.9 days. In the same period of the previous year, coverage was 27.4 days.

Let us now turn to the products.

Petrol: Gasoline inventories decreased for the second week in a row. The 1.7 million barrel decline in fuel is due to stronger demand, which continues to recover from the unprecedented path of the coronavirus. Analysts had forecast a decline of 1.9 million barrels. At 255.3 million barrels, the current stock of the most commonly used oil product is 9.9% above the previous year's level and 9% above the five-year average.

Distillate: The distillate fuel supply (including diesel and heating oil) increased for the eleventh time in 12 weeks. The slight increase of 249,000 barrels reflected higher production and lower demand. In the meantime, the market had been looking to build a supply of 100,000 barrels. At 174.7 million barrels, the current supply is 39.3% above the previous year's level and 28% above the five-year average.

Refining rates: Refinery utilization rose 0.8% year over year to 74.6%.

Conclusion

The increase in crude oil stocks surprised the market again, which expected a decline. Inventories are now at the highest weekly level ever, surpassing the all-time high of 539.3 million barrels reached last week. On a positive note, the oil continued to decline on the Cushing inventory stroke.

Another possible headwind from the report was a recovery in US production that rose after 13 weeks. However, the fact remains that US manufacturers have significantly reduced their business. The weekly numbers show a current production of 11 million barrels a day after 13.1 million in mid-March.

In particular, the volume from the U.S. catchment area number one - Permian - will decrease by 7,000 barrels per day to 4.3 million barrels per 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.

Despite the bullish data in the report, investors are still concerned about the supply flood. Overall, US commercial inventories have increased about 20% since March, while domestic fuel demand, although improving, remains weak. A further increase in distillate stocks in the last report worried dealers.

Here too, capacity utilization in the USA remains far below the usual capacity utilization at this time of year, despite a renewed increase in refinery runs. Downstream operators such as Valero Energy VLO, Marathon Petroleum MPC and HollyFrontier HFC, all of which have a Zacks 3rd rank (hold), have dramatically reduced processing capacity to deal with the erosion of demand caused by efforts to curb the spread of the corona virus . 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) forecasts a worldwide decline in global crude oil consumption by 8.1 million barrels a day to 91.7 million barrels a day in 2020.

Given these factors, while the expansion of the OPEC + production cut most likely caused a discount, serious questions remain about the future direction of the oil.

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Each was chosen by a Zacks expert as number 1 among the favorite stocks to achieve + 100% or more in 2020. Each comes from a different sector and has unique properties and catalysts that could promote exceptional growth.

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US oil prices plummeted on Wednesday after the release of the Department of Energy inventories showed a surprising addition to crude oil stocks that brought it to a new record high.
??
In addition to the problems with oil, investors are still concerned about a second wave of coronavirus infections. With coronavirus infections and hospitalization increasing in several US states, there is concern that the country may be premature to reopen its economy. The resurgence in cases of the deadly pandemic could lead to a new lock, in which many companies have to close immediately after the reopening. In addition, this would raise doubts about the development of oil demand.
??
International Monetary Fund data, which showed a worse than expected global economic collapse, also pushed prices down.
??
On the New York Mercantile Exchange, WTI crude lost $ 2.36, or 5.9%, in August, at $ 38.01 a barrel.
??
Analysis of the latest EIA report
??
Below we review the weekly UVP Petroleum Status Report for the week ending June 19.
??
Crude Oil: The Federal Government's EIA report found that crude oil reserves rose 1.4 million barrels, compared to expectations of a 100,000 barrel decline. A recovery in domestic production was primarily responsible for the surprising increase in inventories among the world's largest oil consumer. This brings the total domestic stocks to 540.7 million barrels. the highest value since its inception, 15.1% above the previous year's value and 16% above the five-year average. ????
??
In the meantime, oil prices were based on further storage 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 991,000 barrels to 45.8 million barrels.
??
Crude oil supplies declined from 40.4 days in the previous week to 39.9 days. In the same period of the previous year, coverage was 27.4 days.
??
Let us now turn to the products.
??
Petrol: Gasoline inventories decreased for the second week in a row. The 1.7 million barrel decline in fuel is due to stronger demand, which continues to recover from the unprecedented path of the coronavirus. Analysts had forecast a decline of 1.9 million barrels. At 255.3 million barrels, the current stock of the most commonly used oil product is 9.9% above the previous year's level and 9% above the five-year average.
??
Distillate: The distillate fuel supply (including diesel and heating oil) increased for the eleventh time in 12 weeks. The slight increase of 249,000 barrels reflected higher production and lower demand. In the meantime, the market had been looking to build a supply of 100,000 barrels. Current deliveries ??? at 174.7 million barrels ??? are 39.3% above the previous year's level and 28% above the five-year average.
??
Refining rates: Refinery utilization rose 0.8% year over year to 74.6%. ????
??
Conclusion
??
The increase in crude oil stocks surprised the market again, which expected a decline. Inventories are now at the highest weekly level ever, surpassing the all-time high of 539.3 million barrels reached last week. On a positive note, the oil continued to decline at the Cushing storage node.
??
Another possible headwind from the report was a recovery in US production that rose after 13 weeks. However, the fact remains that US manufacturers have significantly reduced their business. Weekly numbers show current production of 11 million barrels a day after 13.1 million in mid-March.
??
Especially volumes from the USA ??? Pool number one ??? Permian - should fall from July to April by 7,000 bbl / d to 4.3 MMbbl / d ??? The third month of decline in which companies like Diamondback Energy (FANG), Cimarex Energy (XEC), Concho Resources (CXO), Pioneer Natural Resources (PXD) and others are investing much less money in the unconventional game in 2020.
??
Despite the bullish data in the report, investors are still concerned about the supply flood. Overall, US commercial inventories have increased about 20% since March, while domestic fuel demand, although improving, remains weak. As it is, a further surge in distillate stocks in the last report made traders concerned.
??
Here too, capacity utilization in the USA remains far below the usual capacity utilization at this time of year, despite a renewed increase in refinery runs. Downstream operators such as Valero Energy (VLO), Marathon Petroleum (MPC) and HollyFrontier (HFC) ??? All with a Zacks Rank 3 (Hold) - have dramatically reduced processing capacity to cope with the erosion of demand caused by efforts to curb the spread of the coronavirus. 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. ????
??
With these factors in mind, while the expansion of the OPEC + production cut most likely caused a price drop, serious questions remain about the future direction of the oil.
??
5 shares double
??
Each was chosen by a Zacks expert as number 1 among the favorite stocks to achieve + 100% or more in 2020. Each comes from a different sector and has unique properties and catalysts that could promote exceptional growth.
??
Most of the stocks in this report fly under the radar of Wall Street, which is a great opportunity to get on the ground floor.
??
Check out these 5 potential home runs today >>

Do you want the latest recommendations from Zacks Investment Research? Today you can download 7 best stocks for the next 30 days. Click here to get this free report

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

Marathon Petroleum Corporation (MPC): Free stock analysis report

Cimarex Energy Co (XEC): Free stock analysis report

HollyFrontier Corporation (HFC): Free stock analysis report

Diamondback Energy, Inc. (FANG): Free stock analysis report

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