Energy shares rise as US crude stockpiles drop unexpectedly
EIA reports 3.5 million barrel drawdown, distillate stocks plunge 5.6 million barrels amid tightening supply
Major US energy producers gained ground on Wednesday after government data revealed a deeper-than-expected decline in crude oil inventories, signaling tightening supplies that could support producer margins.
The Energy Information Administration reported that US commercial crude stockpiles fell by 3.5 million barrels to 420.3 million barrels in the week ending January 10, a larger draw than analysts had anticipated and leaving inventories 4% below the five-year average. The report also showed distillate fuel inventories, which include heating oil and diesel, plunged 5.6 million barrels, now sitting 2% below their five-year seasonal average.
Exxon Mobil shares advanced 2.1% to $146.71, while Chevron added 1.6% to $181.17 as traders positioned for potential price strength in the months ahead. The broader energy index outperformed the S&P 500, reflecting renewed investor interest in the sector after a period of volatility.
The inventory drawdown comes at a pivotal moment for energy markets. Brent crude averaged approximately $80 per barrel in January 2025, up from December's average of $73.86, though prices experienced some mid-month volatility due to trade tensions between the United States and China. The energy sector delivered a strong performance in early 2025, rising 8% year-to-date by late March and outperforming the broader market by roughly 10 percentage points.
Lower US production has contributed to the inventory decline, according to the Wall Street Journal, with domestic output remaining below recent peaks as companies prioritize capital discipline over volume growth. This supply restraint, combined with the inventory drawdown, suggests a more balanced market heading into the spring demand season.
Analysts note that the tighter supply backdrop should benefit integrated majors like Exxon and Chevron, which generate significant upstream production revenue while maintaining diversified downstream operations. Both companies have maintained strong capital return programs, with Exxon offering a dividend yield of 2.8% and Chevron yielding 15.5%, making them attractive to income-focused investors.
The EIA's weekly petroleum status report showed that gasoline inventories increased modestly, providing a partial offset to the declines in crude and distillate stocks. However, the overall trend of shrinking commercial supplies points to a market that could see further price support if demand remains stable.
Looking ahead, investors will monitor production levels from OPEC+ nations and the trajectory of global economic growth, which typically drives fuel consumption. Technical indicators for West Texas Intermediate crude showed a bullish crossover between short-term moving averages in early 2025, suggesting upward momentum could persist if inventory trends continue to tighten.