BREAKING: First U.S. inventory decline in two months, mainly due to record exports

After eight weeks of uninterrupted increases, U.S. crude oil inventories finally recorded a decline, even despite a larger release of SPR stocks. Although financial markets are anxiously following reports from the Persian Gulf and hoping for a swift peace, the latest data brings some optimism, pointing to strong external demand and a dynamic increase in the U.S. role as a key exporter of the commodity. Even though the geopolitical situation remains tense, investors are hopefully looking for signs of de-escalation that could restore stability in the Strait of Hormuz region.

Key EIA report data:

• Crude oil stocks: decline of 0.9 million barrels (to a level of 463.8 million barrels), which surprised the market as an increase in stocks was expected.
• Strategic Petroleum Reserve (SPR): decline of 4.1 million barrels (to 409.2 million) in connection with the emergency release of supplies by the Department of Energy.
• U.S. oil exports: massive increase of 1.1 million barrels a day, reaching a level of 5.2 million barrels a day.
• Gasoline stocks: sharp decline of 6.3 million barrels, significantly above the projected 1.7 million draw. This was the largest decline in at least several months.
• Distillate stocks: decline of 3.1 million barrels, putting them about 6% below the five-year average for this time of year.
• Domestic production: remained at a stable level of 13.6 million barrels a day.

After many weeks of increases, we have a drop in commercial inventories, even despite the release of strategic reserves. Source: Bloomberg Finance LP, XTB.

Currently, we are observing a very large decline in stocks from the SPR. A similar situation took place in 2022. Source: Bloomberg Finance LP.

Commentary

The latest EIA report provides interesting conclusions regarding the resilience of the U.S. energy sector. The most striking fact is the real decline in commercial inventories despite a massive injection of oil from the Strategic Petroleum Reserve (SPR). The release of over 4 million barrels from state reserves is a direct response to the blockade of the Strait of Hormuz, which cut off a significant part of global exports. The fact that inventories fell despite such supply testifies to extremely strong domestic and additional external demand.

The main driver of these changes is the expansion of American exports. The result of 5.2 million barrels a day is proof that the USA is becoming a guarantor of energy security during the conflict in the Middle East. At the same time, a drop in imports by 1 million barrels a day further tightened the domestic balance.

However, the positive tone of the data is tempered by the geopolitical background. The market is clearly "playing for peace." Every barrel leaving U.S. storage is worth its weight in gold as long as exports through the Strait of Hormuz remain halted. Very strong gasoline demand (increase to 9.1 million barrels a day) suggests that the U.S. domestic economy is still running at high speed, which, combined with declining fuel stocks, may support prices in the short term. Investors remain cautious, however, hoping that diplomacy will eventually prevail over forceful arguments in the Persian Gulf region.

Inventories of oil and all products are falling quite clearly, approaching the 5-year average. Source: Bloomberg Finance LP, XTB.

Oil will rebound slightly just before the rolling of futures contracts (rolling will be downward due to extreme backwardation). However, it is worth noting that the market is starting to have doubts about the quick start of negotiations between the US and Iran, and additionally, the physical market is extremely tight. Source: xStation5.

​​​​​​​​​​​​​​The difference between the spot price for Brent and the June contract is nearly 30 dollars per barrel. Source: Bloomberg Finance LP, XTB.