U.S. commercial crude stocks and the Strategic Petroleum Reserve both fell sharply in the week ending July 24, leaving the country's buffer against a fresh oil shock at its thinnest point in years. Refiners are running near full capacity to keep fuel flowing at home and abroad, leaving little spare room if another disruption hits.
Commercial crude inventories dropped 7.2 million barrels to 404.5 million barrels, roughly 6% below the five-year seasonal average, the Energy Information Administration reported. The Strategic Petroleum Reserve fell another 3.8 million barrels to 307.7 million, taking the combined weekly draw to almost 11 million barrels. Both draws come as Middle Eastern supply routes remain disrupted by the conflict with Iran, pushing more of the burden onto U.S. storage.
Refiners run near full tilt
To keep fuel moving domestically and to overseas buyers, U.S. refiners processed 17.3 million barrels of crude per day and ran at 97.2% of capacity. That leaves almost no spare refining capacity to replace lost output if a hurricane or unplanned outage strikes the Gulf Coast. As a result, gasoline, diesel and jet-fuel markets could tighten faster than the crude production figures alone would suggest.
America absorbs the global shortfall
According to Kpler's Matt Smith, combined U.S. commercial and strategic crude inventories have declined by nearly 20% since early April. He also estimates that roughly 70% of the crude withdrawn from onshore storage worldwide over the past four months came from U.S. commercial inventories and the SPR. In other words, the world has covered much of the recent supply shortfall by drawing on America's storage tanks.
The reserve's practical floor
Washington can still release more crude, but the SPR is sitting at its lowest level in more than four decades. According to Commodity Context founder Rory Johnston: "precariously low" describes where U.S. crude and gasoline inventories now stand. Estimates put the reserve's practical operating floor around 180 million to 200 million barrels, since oil stored in underground salt caverns grows harder to withdraw quickly as levels fall.
The EIA expects global inventories to fall by another 2.2 million barrels per day in Q3 before production growth begins rebuilding stocks in Q4. That offers a possible route out of the squeeze, but it does not replace a barrel needed today. The next supply disruption would therefore meet a much thinner U.S. buffer, leaving price to absorb more of the strain.
Source: Investing.com
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