US commercial crude inventories fell by 7.2 million barrels last week and the Strategic Petroleum Reserve dropped by 3.8 million barrels to 307.7 million, its lowest level in more than 40 years. Refiners ran at 97% of capacity to capture surging fuel prices as renewed hostilities with Iran restrained tanker traffic through the Strait of Hormuz. Kpler analyst Matt Smith says the pace of the draws cannot persist.
American crude stockpiles are draining far faster than analysts expected. Commercial crude inventories decreased by 7.2 million barrels last week and the US Strategic Petroleum Reserve fell by 3.8 million barrels, as refiners drew down stocks to make products such as petrol, diesel and jet fuel.
Refineries run at 97% of capacity
Government data published on Wednesday showed US refineries running at 97% of capacity, with those in some parts of the Midwest operating at 100%, as US energy companies increase exports to energy-hungry markets in Asia and Europe. Refiners boosted activity to take advantage of surging fuel prices driven by renewed hostilities with Iran.
At the same time, supply of oil and petroleum products from the Middle East faces continued disruption after attacks between the US and Iran resumed over the past week, severely restraining tanker traffic through the Strait of Hormuz.
The reserve sits at a 40-year low
The government is still releasing oil from its strategic petroleum reserve, and the latest drawdown took it to 307.7 million barrels, the lowest level in more than 40 years. Industry analysts estimate its operational minimum — below which further withdrawals risk damaging infrastructure and disrupting pipeline operations — at 180 million to 200 million barrels.
Matt Smith, analyst at Kpler, said US crude inventories, both commercial and the SPR, have drawn down by nearly 20% since early April. He added that the US accounts for about 70% of global onshore crude inventory draws over the past four months, carrying the burden of trying to keep oil prices in check through SPR releases and higher exports while stockpiles deplete rapidly.
America's role as supplier of last resort erodes
Analysts warned the big drawdown pushed stocks of crude and petrol far lower than expected and was eroding America's ability to be the supplier of last resort to parts of the world such as Asia and Europe that were heavily dependent on Middle Eastern oil. Rory Johnston, oil market analyst and founder of Commodity Context, put it more bluntly.
According to Johnston, crude and petrol stocks are at "precariously low" levels. Drained supplies leave Washington increasingly vulnerable to future supply shocks without the substantial buffer the reserve releases had provided. That absence sets the stage for crude prices to increase significantly when the reserve hits its operational minimum.
Source: Financial Times
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