⚫Massive Drop in US Oil Inventories Further Fuels Prices

The weekly report from the US Energy Information Administration (EIA) on the status of crude oil and product inventories brought a clear surprise to the market. Crude oil inventories in the United States fell much more sharply than expected by the market, driven by a decline in imports, higher exports, and high refinery throughput.

Key Data from the EIA Report (Week Ending July 24):

• Commercial Crude Oil Inventories: Drop of 7.2 million barrels to 404.5 million barrels (the market expected a drop of only 0.6 million barrels). Inventories are currently about 7% below the 5-year average.
• Strategic Petroleum Reserve (SPR): Drop of 3.8 million barrels to 307.7 million barrels due to continued release of emergency reserves.
• Cushing Hub Inventories (Oklahoma): Inventories at the key delivery point for NYMEX contracts fell by 771 thousand barrels to 18.6 million barrels.
• Refinery Activity: Utilization capacity increased by 1.1 percentage points to 97.2% (throughput increased by 271 thousand b/d to 17.3 million b/d). Forecasts predicted a decline in utilization by 0.3 percentage points.
• Production and Trade: US production remained at 13.8 million b/d. Imports fell by 124 thousand b/d (to 5.7 million b/d), while exports increased by 114 thousand b/d (to 3.5 million b/d).
• Finished Fuel Inventories:
  • Gasoline: Virtually unchanged at 211.3 million barrels (approx. 6% below the 5-year average; a drop of 0.8 million was expected). Daily demand rose by 94 thousand b/d to 9 million b/d.
  • Distillates: Increase of 1.1 million barrels to 110.6 million barrels (contrary to the forecast drop of 0.3 million).

A significant surprise and a clear drop after consolidation in the last few weeks. Source: Bloomberg Finance LP, XTB

Overall inventories are not falling as sharply, which is related to higher crude oil processing into fuels. Source: Bloomberg Finance LP, XTB

Strategic reserves are clearly falling. Source: Bloomberg Finance LP, XTB

Market Commentary

The EIA data points to sustained tension on the supply side in the US. Commercial crude oil inventories are closely approaching the lower limits of the 5-year minimums for this time of year, and overall inventories of petroleum products are at historically low levels.

The very high level of refinery utilization (97.2%) shows strong demand at the peak of the vacation season, which, combined with rising exports and falling strategic reserves (SPR), limits the US fuel security buffer.

Geopolitics: Escalation of the Conflict in the Middle East

Apart from fundamental inventory data, the situation in the Middle East remains a significant factor shaping oil prices.

Geopolitical Tensions Drive Increases: Ceny ropy Brent and WTI oil prices are recording strong gains of over 7.5% after the collapse of the truce in the Middle East and direct missile attacks by Iran targeting US forces. Market concerns relate to the possibility of a renewed disruption to the continuity of crude oil supplies and key maritime routes in the region.

WTI oil is experiencing a massive increase today and a return above the 50-period moving average. Currently, the vicinity of $85 per barrel is being tested, while important resistance is around $87-88 at the 50.0 retracement. Source: xStation5