U.S. Crude Oil Inventories Drop Sharply, Exceeding Expectations

Keynotes:

• U.S. crude oil inventories decreased by 4.339 million barrels, surpassing the expected drop of 1.1 million barrels.

• Strategic Petroleum Reserve grew by 1.3 million barrels but remains significantly lower than previous levels.

• Brent crude and WTI prices rose due to supply concerns and economic stimuli from China.

The American Petroleum Institute (API) reported a significant drop in U.S. crude oil inventories, which fell by 4.339 million barrels for the week ending September 20. This decline was much larger than the anticipated 1.1-million-barrel reduction and follows the previous week’s increase of 1.96 million barrels. The drop has brought year-to-date crude oil inventories 15 million barrels below where they were at the start of 2023, reflecting tighter market conditions.

Meanwhile, the Department of Energy (DoE) reported a rise in the Strategic Petroleum Reserve (SPR), which saw an increase of 1.3 million barrels, bringing the total to 381.9 million barrels. This marks a significant recovery from last summer’s multi-decade low, but the reserve is still 253 million barrels lower than when President Biden assumed office. The increase in SPR could be seen as part of ongoing efforts to stabilize oil supplies amid global uncertainties.

The significant drop in inventories and the SPR’s recovery impacted oil prices. Brent crude rose by $1.30, trading at $75.20 per barrel, while the U.S. benchmark West Texas Intermediate (WTI) increased by $1.24 to $71.61 per barrel. The rise in prices was further supported by China’s announcement of monetary stimulus to bolster its economy, concerns over potential supply disruptions from hurricanes, and ongoing geopolitical tensions in the Middle East.

Gasoline inventories also saw a substantial decline, falling by 3.438 million barrels. This drop more than offset the previous week’s increase of 2.34 million barrels and placed gasoline stocks just below the five-year average for this time of year, according to the latest data from the Energy Information Administration (EIA). The reduction in gasoline inventories suggests stronger demand or reduced production, which could impact fuel prices in the near term.

Distillate inventories, which include diesel and heating oil, fell by 1.115 million barrels, following the previous week’s increase of 2.3 million barrels. Distillate stocks remain around 9% below the five-year average, indicating tight supply conditions that could affect industries reliant on these fuels, such as transportation and agriculture.

Cushing, Oklahoma, a critical storage and delivery point for crude oil, saw a modest decline of 26,000 barrels, adding to the previous week’s significant draw of 1.4 million barrels. This reduction in Cushing inventories is noteworthy, as it affects the supply chain and trading dynamics of U.S. crude oil.

These inventory movements reflect ongoing volatility in the oil market, influenced by various factors, including global economic policies, weather-related disruptions, and geopolitical tensions. The tightness in U.S. crude and refined product inventories could lead to increased price volatility in the coming weeks, especially as the market responds to fluctuating supply and demand dynamics.