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Oil inventories showed another near-record weekly build, stoking investor worries of a supply glut. In total, U.S. commercial stockpiles rose more than 62 million barrels since the week ending Mar 20. Further, domestic fuel demand dropped by a whopping 25% over the past month as the outbreak of coronavirus led to widespread lockdown with motorists off road and planes grounded. Meanwhile, refinery utilization in the United States is at its lowest level since 2008, while the latest storage surge has rendered Cushing oil storage tanks around 80% full.
The bearish data points notwithstanding, U.S. oil prices ended sharply higher Thursday for a second straight session, buoyed by the prospect of mounting uncertainty in the Middle East hitting global supplies. However, oil market fundamentals are headed in a really bearish direction as evidenced by the bizarre turn of events earlier this week when WTI futures for May fell under zero and finished at -$37.63 a barrel. Investors remain concerned that the historic OPEC+ deal to curb production won’t be enough to offset the coronavirus-induced demand destruction.
Independent energy research and business intelligence company, Rystad Energy estimates a massive supply surplus of 27.4 million barrels per day in April, while The International Energy Agency (IEA) projects the imbalance for the month at 29 million barrels a day.
This implies that oil prices are unlikely to trade much higher from current levels. It's been a catastrophic year so far for crude oil, with the American benchmark WTI suffering a dramatic collapse. Even the likes of ExxonMobil (XOM - Free Report) , Chevron (CVX - Free Report) , Royal Dutch Shell and BP plc (BP - Free Report) are struggling to contend with these low commodity prices with their dividend paying business models under severe pressure. But some E&P operators like Occidental (OXY - Free Report) — carrying a Zacks Rank #3 (Hold) — had to slash their dividend payout to stay afloat.
The latest figures from the EIA, which point to an oversupplied oil market, have added to the turmoil.
Analyzing the Latest EIA Report
The U.S. Energy Department's latest inventory release revealed the thirteenth straight weekly increase in stockpiles, while gasoline and distillate inventories rose too.
Below we review the EIA's Weekly Petroleum Status Report for the week ending Apr 17.
Crude Oil: The federal government’s EIA report revealed that crude inventories surged by 15 million barrels, versus expectations for a 12.9 million barrels increase. The latest stockpile jump follows a record-setting 19.2 million barrels addition in the previous week. A slump in refinery runs, tied to evaporating demand associated with the pandemic, primarily drove the record stockpile build with the world's biggest oil consumer. This puts total domestic stocks at 518.6 million barrels — 12.6% above the year-ago figure and 9% over the five-year average. Per official U.S. data, oil inventories are now close to their peak of 535.5 million barrels achieved in March 2017.
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 up 4.8 million barrels to 59.7 million barrels.
The crude supply cover was up from 35.3 days in the previous week to 38.7 days. In the year-ago period, the supply cover was 28.5 days.
Let’s turn to products now.
Gasoline: Gasoline supplies tallied an increase for the fourth week in a row. The fuel’s 1 million barrels build is attributable to the drying up of demand from the coronavirus-induced economic shutdown. Analysts had forecast 5.7 million barrels gain. While the stock climb was significantly smaller than expected, at a record 263.2 million barrels, the current stock of the most widely used petroleum product is 16.6% higher than the year-earlier level and is 12% above the five-year average range. Disruption due to the pandemic’s effect has depressed the products’ consumption significantly, which edged up by 23,000 barrels per day last week but remained within touching distance of the record low of 5.1 million barrels per day.
With the EIA numbers starting to reflect demand destruction caused by the contagion, market watchers believe that demand is set to shrink further (in April and May) and the worst is still to come for the oil markets. Independent analysts say that motor fuel consumption is likely to take a severe hit as coronavirus forces more people to work remotely and observe social distancing.
Distillate: Distillate fuel supplies (including diesel and heating oil) jumped for a third straight week. The 7.9 million barrels increase could be attributed to plunging imports amid flat production and depressed demand. Meanwhile, the market had been looking for a supply build of 3.7 million barrels. Current supplies — at 136.9 million barrels — are 7.8% higher than the year-ago level but remain 1% below the five-year average.
Refinery Rates: Refinery utilization was down 1.5% from the prior week to 67.6%, the lowest since 2008 and within a percentage point from record lows. Downstream operators including Phillips 66, Marathon Petroleum (MPC - Free Report) , HollyFrontier have drastically reduced processing capacity to cope with the demand erosion caused by efforts to stem the spread of the coronavirus. As a matter of fact, U.S. oil input to refineries has fallen quickly in recent weeks, with the latest period reflecting a 209,000 barrels drop to 12.5 million barrels per day.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
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Image: Bigstock
Coronavirus Pushes Oil Supplies Toward Record, Hits Fuel Demand
Oil inventories showed another near-record weekly build, stoking investor worries of a supply glut. In total, U.S. commercial stockpiles rose more than 62 million barrels since the week ending Mar 20. Further, domestic fuel demand dropped by a whopping 25% over the past month as the outbreak of coronavirus led to widespread lockdown with motorists off road and planes grounded. Meanwhile, refinery utilization in the United States is at its lowest level since 2008, while the latest storage surge has rendered Cushing oil storage tanks around 80% full.
The bearish data points notwithstanding, U.S. oil prices ended sharply higher Thursday for a second straight session, buoyed by the prospect of mounting uncertainty in the Middle East hitting global supplies. However, oil market fundamentals are headed in a really bearish direction as evidenced by the bizarre turn of events earlier this week when WTI futures for May fell under zero and finished at -$37.63 a barrel. Investors remain concerned that the historic OPEC+ deal to curb production won’t be enough to offset the coronavirus-induced demand destruction.
Independent energy research and business intelligence company, Rystad Energy estimates a massive supply surplus of 27.4 million barrels per day in April, while The International Energy Agency (IEA) projects the imbalance for the month at 29 million barrels a day.
This implies that oil prices are unlikely to trade much higher from current levels. It's been a catastrophic year so far for crude oil, with the American benchmark WTI suffering a dramatic collapse. Even the likes of ExxonMobil (XOM - Free Report) , Chevron (CVX - Free Report) , Royal Dutch Shell and BP plc (BP - Free Report) are struggling to contend with these low commodity prices with their dividend paying business models under severe pressure. But some E&P operators like Occidental (OXY - Free Report) — carrying a Zacks Rank #3 (Hold) — had to slash their dividend payout to stay afloat.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The latest figures from the EIA, which point to an oversupplied oil market, have added to the turmoil.
Analyzing the Latest EIA Report
The U.S. Energy Department's latest inventory release revealed the thirteenth straight weekly increase in stockpiles, while gasoline and distillate inventories rose too.
Below we review the EIA's Weekly Petroleum Status Report for the week ending Apr 17.
Crude Oil: The federal government’s EIA report revealed that crude inventories surged by 15 million barrels, versus expectations for a 12.9 million barrels increase. The latest stockpile jump follows a record-setting 19.2 million barrels addition in the previous week. A slump in refinery runs, tied to evaporating demand associated with the pandemic, primarily drove the record stockpile build with the world's biggest oil consumer. This puts total domestic stocks at 518.6 million barrels — 12.6% above the year-ago figure and 9% over the five-year average. Per official U.S. data, oil inventories are now close to their peak of 535.5 million barrels achieved in March 2017.
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 up 4.8 million barrels to 59.7 million barrels.
The crude supply cover was up from 35.3 days in the previous week to 38.7 days. In the year-ago period, the supply cover was 28.5 days.
Let’s turn to products now.
Gasoline: Gasoline supplies tallied an increase for the fourth week in a row. The fuel’s 1 million barrels build is attributable to the drying up of demand from the coronavirus-induced economic shutdown. Analysts had forecast 5.7 million barrels gain. While the stock climb was significantly smaller than expected, at a record 263.2 million barrels, the current stock of the most widely used petroleum product is 16.6% higher than the year-earlier level and is 12% above the five-year average range. Disruption due to the pandemic’s effect has depressed the products’ consumption significantly, which edged up by 23,000 barrels per day last week but remained within touching distance of the record low of 5.1 million barrels per day.
With the EIA numbers starting to reflect demand destruction caused by the contagion, market watchers believe that demand is set to shrink further (in April and May) and the worst is still to come for the oil markets. Independent analysts say that motor fuel consumption is likely to take a severe hit as coronavirus forces more people to work remotely and observe social distancing.
Distillate: Distillate fuel supplies (including diesel and heating oil) jumped for a third straight week. The 7.9 million barrels increase could be attributed to plunging imports amid flat production and depressed demand. Meanwhile, the market had been looking for a supply build of 3.7 million barrels. Current supplies — at 136.9 million barrels — are 7.8% higher than the year-ago level but remain 1% below the five-year average.
Refinery Rates: Refinery utilization was down 1.5% from the prior week to 67.6%, the lowest since 2008 and within a percentage point from record lows. Downstream operators including Phillips 66, Marathon Petroleum (MPC - Free Report) , HollyFrontier have drastically reduced processing capacity to cope with the demand erosion caused by efforts to stem the spread of the coronavirus. As a matter of fact, U.S. oil input to refineries has fallen quickly in recent weeks, with the latest period reflecting a 209,000 barrels drop to 12.5 million barrels per day.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Click here for the 6 trades >>