U.S. oil prices moved up on Apr 12, hitting their highest level so far this year after government data showed a lower-than-expected weekly build in crude to go with the drop in gasoline and distillate supplies. On the New York Mercantile Exchange, WTI crude futures rose $1.73 (or 2.1%) to settle at $83.26 a barrel yesterday.

Other factors driving the energy market are the recently announced surprise production cut by the OPEC+ cartel, hopes for an end to interest rate hikes following encouraging inflation data and potential refill to the U.S. Strategic Petroleum Reserve (“SPR”) that could drain supplies.   

Some oil-related stocks that could benefit in the current environment include NOW Inc. (DNOW Quick QuoteDNOW - Free Report) , Par Pacific Holdings (PARR Quick QuotePARR - Free Report) and Sunoco LP (SUN Quick QuoteSUN - Free Report) .

Before going into the overall macro environment for oil, let's dig deep into the Energy Information Administration’s ("EIA") Weekly Petroleum Status Report for the holiday-shortened week ending Apr 7.

Analyzing the Latest EIA Report

Crude Oil: The federal government’s EIA report revealed that crude inventories rose 597,000 barrels compared to expectations of a 700,000-barrel increase per the analysts surveyed by S&P Global Commodity Insights. The combination of lower exports, higher production and a drop in refinery demand accounted for the stockpile build with the world’s biggest oil consumer.

Total domestic stocks now stand at 470.5 million barrels — 11.5% more than the year-ago figure and 3% higher than the five-year average.

However, on a slightly bullish note, the latest report showed that supplies at the Cushing terminal (the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange) fell 409,000 barrels to 33.8 million barrels.

Meanwhile, the crude supply cover, at 30.2 days, remained unchanged from the previous week. In the year-ago period, the supply cover was 26.7 days.

Let’s turn to the products now.

Gasoline: Gasoline supplies decreased for the eighth time in as many weeks. The 330,000-barrel fall was primarily attributable to lower production. Analysts had forecast that gasoline inventories would drop 900,000 barrels. At 222.2 million barrels, the current stock of the most widely used petroleum product is 4.7% less than the year-earlier level, while it is 7% below the five-year average range.

Distillate: Distillate fuel supplies (including diesel and heating oil) dropped for the second week in succession. The 606,000-barrel decrease reflected lower production and a rise in exports. Meanwhile, the market looked for a supply build of some 2 million barrels. Following last week’s decline, current inventories — at 112.4 million barrels — are marginally below the year-ago level (by 0.9%) and 11% lower than the five-year average.

Refinery Rates: Refinery utilization, at 89.3%, edged down 0.3% from the prior week.

Final Word

Even as fears related to high inflation and slowing growth somewhat cloud the outlook for Oil/Energy, it has remained the best S&P 500 sector over the past year. The space has generated a total return of around 12.1% in the trailing 12 months compared with the S&P 500’s decline of 6.9%.

Apart from a relatively constructive fundamental picture, the sector is enjoying support from geopolitical uncertainty amid Russia’s military operations in Ukraine. In March 2022, crude prices surged to multi-year highs of $130 on concerns about supplies from Russia, one of the world's largest producers of the commodity.

Agreed, oil has pulled back from those lofty levels, However, the commodity still has enough reasons to stay elevated in the near-to-medium term, with the conflict showing no signs of a quick resolution, the risk of dwindling inventory and the influential oil exporters’ group OPEC sticking to a conservative production profile.

While the banking sector turmoil did affect the sector temporarily, the crisis seems to have eased now. Crude also got a leg up and is now trading above $80 after U.S. Federal Reserve signaled an imminent end to interest rate increases, while the Biden Administration hinted at replenishing the SPR — a massive supply of government crude that is used in unforeseen circumstances — sometime this year.

3 Stocks to Buy

Investors interested in the energy sector might look at NOW Inc., Par Pacific Holdings and Sunoco LP. Each of the companies currently carries a Zacks Rank #1 (Strong Buy).

You can see the complete list of today’s Zacks #1 Rank stocks here.

NOW Inc.: DNOW beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters. NOW Inc. has a trailing four-quarter earnings surprise of 41.3%, on average.

The oilfield services provider is valued at around $1.2 billion. NOW Inc. has seen its shares edge down 0.3% in a year.

Sunoco LP: SUN beat the Zacks Consensus Estimate for earnings twice in the trailing four quarters. Sunoco has a trailing four-quarter earnings surprise of 21.6%, on average.

Sunoco is valued at around $4.5 billion. The motor fuel distributor has seen its shares gain 5.4% in a year.

Par Pacific Holdings: Par Pacific beat the Zacks Consensus Estimate for earnings in three of the last four quarters. The oil refining company has a trailing four-quarter earnings surprise of roughly 16.1%, on average.

Par Pacific is valued at around $1.7 billion. PARR has seen its shares surge 82.1% in a year.