Inside Oil's 9% Rise



  • Oil prices soared this past week, driven largely by great news coming from the EIA.
  • Although not every indicator (think production) was bullish, the drop in inventories was impressive and shows signs of potential capitulation.
  • Add to this the drop in the Baker Hughes rig count and investors should remain more bullish than bearish moving forward.

Oil prices soared this week, climbing around 9%, largely driven by great news coming from the EIA (Energy Information Administration) concerning inventory levels for the prior week's period. Although the near-term view for crude still appears somewhat negative, this is a refreshing release that helps to alleviate the issues reported a week earlier, which saw inventories soar significantly. In what follows, I will dig into the data and show that, while investors should expect volatility in the weeks to come, this is long-term bullish for those invested in energy companies like Linn Energy (LINE)/ LinnCo (LNCO) , Breitburn Energy Partners (BBEP), and Approach Resources (AREX), as well as for those invested in the United States Oil ETF (USO).

Inventories fell a lot

The big takeaway from the week is that oil inventories plummeted by 5.88 million barrels, dropping from 490.7 million barrels (just 0.2 million barrels shy of their all-time high) to 484.8 million. This implies that about 4.5% of the total domestic oil glut vanished over the course of the week, driven mostly by a 7.29 million barrel decline in aggregate net imports versus a week earlier. To put this in context, analysts expected inventories to actually rise by around 1.4 million barrels and the API (American Petroleum Institute) expected inventories to pull back to the tune of 3.6 million barrels. In essence, the EIA's release handily outperformed both sets of expectations.

In addition to reporting decreases in crude, the EIA also saw other categories of petroleum products report inventory drawdowns. Based on the data provided, propane/propylene reported the largest drop, with inventories falling 1.4 million barrels. Distillate fuel oil saw inventories decline by 0.7 million barrels for the period, while the "other" category of petroleum products experienced a 0.4 million barrel drawdown. Unfortunately, not every category experienced a drop, the most significant of which was motor gasoline, which saw inventories

This article was written by

Daniel Jones profile picture
Robust cash flow analyses of oil and gas companies

Daniel is an avid and active professional investor. He runs Crude Value Insights, a value-oriented newsletter aimed at analyzing the cash flows and assessing the value of companies in the oil and gas space. His primary focus is on finding businesses that are trading at a significant discount to their intrinsic value by employing a combination of Benjamin Graham's investment philosophy and a contrarian approach to the market and the securities therein.

Disclosure: I am/we are long LINE, BBEP, AREX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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