Analysis: EIA Sees Oil Stocks Plunge Amid Record SPR Draw

VIENNA (DTN) – Crude oil stockpiles in the United States are shrinking at the fastest pace on record, Energy Information Administration data showed Wednesday (5/20). Continued high export demand and the largest single-week release from the U.S. Strategic Petroleum Reserve drew from inventories at a rate of more than 2.54 million bpd last week.

In the wake of the largest oil supply disruption in history, member countries of the International Energy Agency have agreed to a coordinated 400 million bbl crude oil release from their strategic reserves. The U.S. is stemming 43% of the emergency release, amounting to some 172 million bbl. Last week’s 9.9 million bbl drawdown was the eight consecutive one, and the largest in history. Volumes in the SPR have since the last week of March fallen by more than 41 million bbl.

The Department of Energy last week said it will loan companies more than 53 million bbl from the SPR to fulfill its commitment to the 172 million bbl release. Since late March, companies have borrowed nearly 80 million bbl of the offered 126 million bbl in three batches.

While domestic interest seemed limited in the first three rounds of bids, record high international demand for U.S. crude oil continued unabated. According to the EIA, crude exports clocked in at 5.6 million bpd last week, bringing the four-week average to 5.57 million bpd, up nearly 50% year-on-year.

Commercial crude oil inventories have consequently plunged much faster, and much earlier, than is typical for this time of year when domestic refiners are just starting to ramp up runs heading into main fuel demand season. Last week’s 7.9 million bbl decline, the fourth consecutive draw to commercial stocks, left inventories 20.7 million bbl lower than a month ago. This implies a 740,000-bpd deficit in the balance, a pace of inventory draws usually confined to the summer months.

Given the limited tanker availability, flows from the Middle East will be slow to return once the Strait of Hormuz is reopened. Cargo bookings of U.S. crude may slow down once global supply eases, but the reality of oil trade means inventories will only experience the relief from lower exports with several weeks of delay, just at the time when domestic demand is at its seasonally highest. Consequently, even in the best-case scenario of an immediate return of supply from the Persian Gulf, U.S. inventories are set to continue to dwindle at an unusually fast pace.