Column: Depletion of US crude inventories raises oil prices

LONDON, Aug 31 (Reuters) – U.S. commercial crude inventories have depleted 34 million barrels since mid-July, contributing to a sense that the market is tight and prompting a recovery in spot prices and calendar spreads.

Commercial crude oil inventories have fallen in five of the last six weeks, according to surveys conducted by the US Energy Information Administration.Weekly oil situation report“, Environmental Impact Assessment, August 30).

Commercial crude was responsible for all of the decline in total inventories over the same period, which are down by just 19 million barrels since July 14, with products up by 12 million and strategic inventories by 3 million.

As a result, commercial crude oil inventories were only +1 million barrels higher (+0.3% or +0.02 standard deviations) than the previous 10-year seasonal average on Aug. 25.

The surplus has narrowed from a recent high of +22 million barrels (+5% or +0.37 standard deviation) on July 14.

The latest drawdown has reversed a previous buildup that has seen the surplus swell since the end of April.

Chart book: US commercial crude inventories

As a result, US crude futures prices for the nearest months have risen by about $7 a barrel (9%) since July 14, and about $15 (22%) from their recent low on June 27.

In the context of anticipating, accelerating and exaggerating the decline in stocks and the rise in prices, hedge funds increased their positions in US crude futures and options to 134 million barrels on August 22, compared to only 46 million on June 27.

Cushing was drained

The decline in inventories, in particular, has drained stocks from tank farms clustered around Cushing, Oklahoma, the delivery point for US crude futures on the New York Stock Exchange.

Cushing Crude Inventories have fallen in five of the last six weeks by a total of 9 million barrels (-24%) since July 14.

Cushing inventories were less than -12 million barrels (-29% or -0.81 standard deviations) lower than the previous 10-year average on Aug. 25 after being less than -1 million barrels (-2% or -0.06 standard deviations) lower in June 30 .

Reflecting the low level of inventories, the three-month calendar spread in US crude futures contract narrowed to a decline of $1.14 per barrel on August 25 compared to the small contango in late June.

The decline in US crude inventories coincided with additional production cuts by Saudi Arabia and Russia totaling about 75 million barrels during July and August.

Saudi Arabia has also directed its crude oil exports away from the north by raising official selling prices to buyers in the United States well above those of refineries in Asia.

Global Market Agent

US Crude Inventories and other oil inventories are the most visible part of the global oil market because they are reported weekly with minimal delay compared to monthly reports with much longer delays for other countries.

Traders and investors often deal with changes in US inventories as an indicator of changes in the balance of production and consumption at the global level.

The continued depletion of inventories in the United States is usually interpreted as a signal that the global market is in deficit, causing spot prices and spreads to rise.

For the same reason, any oil producer, trader or investor who wants to start a rapid increase in prices and spreads is likely to focus on reducing visible inventories in the US rather than less visible stocks in Europe and Asia.

Net US imports of crude oil

US net imports of crude oil remain weak despite depleted inventories, with exports continuing to operate at a relatively fast rate while imports remain subdued.

Net crude oil imports averaged just 2.9 million barrels per day in August based on preliminary average weekly data for the month.

Net imports rose slightly from 2.7 million bpd in the same month in 2022 but fell from 3.2 million bpd in 2021 and 4.2 million bpd in 2019.

American strategic bulletins

The US Department of Energy released nearly 26 million barrels of crude oil from the Strategic Petroleum Reserve (SPR) in the first six months of 2023 and has released a total of 247 million barrels since the beginning of 2022.

The releases contributed to downward pressure on both spot prices and calendar spreads by increasing the amount of oil readily available to traders and refiners.

The Biden administration directed them to make up for any oil shortages and upward pressure on prices as a result of the Russian invasion of Ukraine and the sanctions imposed by the United States and the European Union in response.

But the launches were essentially completed by the end of June, and the ministry has since added nearly 3 million barrels to the Strategic Oil Reserve, as part of its plan to gradually refill stocks when prices are relatively low.

The shift from strategic stock liquidation to accumulation further tightened the availability of crude oil in the commercial market and added upward pressure on prices and spreads.

Related columns:

– Oil market will tighten modestly in late 2023 (August 17, 2023)

– Crude Oil, Fuel Attract Money as Sentiment Changes (August 7, 2023)

– Oil and gas production in the United States begins to stabilize (August 4, 2023)

– Saudi production cut removes downside risks from the oil market (July 12, 2023)

John Kemp is a Reuters market analyst. The opinions expressed are his own

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