The U.S. Energy Department's weekly inventory release showed
that crude stockpiles logged a larger-than-expected decline. The
report further revealed that within the 'refined products'
category, gasoline stocks fell, while distillate supplies were up
from the week-ago level. Meanwhile, refiners scaled down their
utilization rates by 1.5%.
The supportive crude data from the U.S. government, together
with the ongoing unrest in Egypt that could destabilize the
resource-rich Middle East and further tighten the global supply
picture, has nudged the commodity above $107 a barrel.
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.
Analysis of the Data
Crude Oil:
The federal government's EIA report revealed that crude
inventories fell by 2.81 million barrels for the week ending Aug
09, 2013, following a decrease of 1.32 million barrels in the
previous week.
The analysts surveyed by Platts - the energy information arm
of
McGraw-Hill Financial Inc.
(
MHFI
) - had expected crude stocks to go down some 1.5 million
barrels. A steep drop in Gulf Coast supplies led to the stockpile
drawdown with the world's biggest oil consumer even as domestic
production continued to spike, now at their highest level since
1989.
In particular, crude inventories at the Cushing terminal in
Oklahoma - the key delivery hub for U.S. crude futures traded on
the New York Mercantile Exchange - were down 1.36 million barrels
from the previous week's level to 38.52 million barrels. Stocks
are currently at their lowest since Mar last year and 25.7% under
the all-time high of 51.86 million barrels reached in Jan.
As a result of the sixth weekly inventory decline in 7 weeks,
at 360.49 million barrels, current crude supplies are now 1.6%
below the year-earlier level, though it is still close to the
upper limit of the average for this time of the year. The crude
supply cover remained at 22.7 days - same as in the previous
week. In the year-ago period, the supply cover was 23.4 days.
Gasoline:
Supplies of gasoline were down for the first time in 3 weeks
despite a decline in domestic consumption. The fall in gasoline
inventories could be attributed to lower imports and domestic
production.
The 1.17 million barrels withdrawal - below analysts'
projections for a 2 million-barrels decrease in supply level -
took gasoline stockpiles down to 222.43 million barrels.
Notwithstanding this drawdown, the existing inventory level of
the most widely used petroleum product is 9.2% higher than the
year-earlier level and is near the top half of the average
range.
Distillate:
Distillate fuel supplies (including diesel and heating oil) were
up 2.03 million barrels last week, surpassing analysts'
expectations for a 1 million barrels rise in inventory level. The
increase in distillate fuel stocks - the second in as many weeks
- could be attributed to weaker demand and higher imports,
somewhat negated by the effects of lower production.
At 128.48 million barrels, distillate supplies are 3.5% above
the year-ago level but is close to the lower limit of the average
range for this time of the year.
Refinery Rates:
Refinery utilization edged down 1.5% from the prior week to
89.4%. The analysts were expecting the refinery run rate to
decrease 0.3% to 90.6%.
Stocks to Consider
With spot crude price staying strong - at around $107 a barrel
- brokerage analysts are likely to upgrade their forecasts on
oil-weighted companies and related support plays, leading to
positive estimate revisions. While all crude-focused stocks -
including behemoths like
Exxon Mobil Corp.
(
XOM
) and
Chevron Corp.
(
CVX
) - stand to benefit from rising commodity prices, companies in
the exploration and production (E&P) sector are the best
placed, as they will be able to extract more value for their
products.
In particular, one can look at
Matador Resources Co.
(
MTDR
) - a small-cap, undervalued E&P player - as a good buying
opportunity. Dallas TX-based Matador Resources, sporting a Zacks
Rank #1 (Strong Buy), with current focus on the high-return Eagle
Ford shale formation in South Texas, is expected to witness
earnings growth of 232% in 2013 and 32% in 2014. Moreover, a
price-to-book (P/B) ratio of just 2.3 suggests that the stock is
still undervalued. In fact, shares of Matador Resources have
risen from $12.78 to $15.96 since we recommended it on
Crude Prices Surge: 3 Stocks to Buy Now
on Jul 22.
