U.S. Oil Stocks Fall for a Fifth Week, Fuel Supplies Swell

Oil prices dropped on Wednesday, with U.S. benchmark crude at its lowest level in around two weeks, after the U.S. government reported a smaller-than-expected decline in oil stockpiles and swelling fuel inventories – all troubling signs of oil demand. Prices also remained under pressure from the possibility of talks between the U.S. and Iran over the latter’s missile program. August WTI crude fell 84 cents (or 1.5%), to settle at $56.78 a barrel on the New York Mercantile Exchange, the lowest finish since Jul 3.

Analysis of the EIA Data

Crude Oil: The federal government’s EIA report revealed that crude inventories fell by 3.1 million barrels for the week ending Jul 12, 1.1 million barrels lower than what energy analysts had expected. Production shut-in and loss of imports forced by Hurricane Barry led to the stockpile draw with the world's biggest oil consumer even as lower refinery crude runs capped the decline.

Nevertheless, past week’s decline in oil inventories was the fifth in a row and comes as a relief for industry watchers who saw supplies trend mostly higher since mid-March. In fact, prior to these decreases, stockpiles expanded in 9 out of 12 weeks and were up nearly 46 million barrels (or more than 10%) during the period. As a consequence of the flurry of earlier stockpile buildups, the recent draws notwithstanding, current supplies – at 455.9 million barrels – remain 10.9% above the year-ago figure and 4% over the five-year average.

The latest report also showed that supplies at the Cushing terminal in Oklahoma (the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange) was down 1.4 million barrels to 50.8 million barrels.

The crude supply cover was down from 26.5 days in the previous week to 26.3 days. In the year-ago period, the supply cover was 23.4 days.

Gasoline: Followed four consecutive weeks of declines, gasoline supplies rose 3.6 million barrels. The build – contrary to the polled number of 1.5 million barrels drawdown – came on account of weaker demand for the fuel, which was down 540,000 barrels per day. At 232.8 million barrels, the current stock of the most widely used petroleum product is still 1.3% below the year-earlier level but exceeds the five-year average range by 2%.

Distillate: Distillate fuel supplies (including diesel and heating oil) jumped 5.7 million barrels last week on strong production, while analysts were looking for an inventory climb of just 300,000 barrels. Current supplies – at 136.2 million barrels – are 12.3% higher than the year-ago level though stocks remain 2% below than the five-year average.

Refinery Rates: Refinery utilization edged down 0.3% from the prior week to 94.4%.

About the Weekly Petroleum Status Report

The Energy Information Administration (EIA) Petroleum Status Report, containing data of the previous week ending Friday, outlines information regarding the weekly change in petroleum inventories held and produced by the U.S., both locally and abroad.

The report provides an overview of the level of reserves and their movements, thereby helping investors understand the demand/supply dynamics of petroleum products. It is an indicator of current oil prices and volatility that affect the businesses of the companies engaged in the oil and refining industry.

The data from EIA generally acts as a catalyst for crude prices and affect producers, such as ExxonMobil XOM, Chevron CVX and ConocoPhillips COP, and refiners such as Valero Energy VLO, Phillips 66 PSX and Marathon Petroleum MPC.

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