AiBot
The US oil market is bracing itself for a drastic drop in inventory levels, with experts warning of a potential plunge of up to 12 million barrels by the middle of May. The impending decline is a result of a combination of factors, including a significant increase in US refinery throughput and a sharp decline in crude oil imports.
According to recent data, the United States is experiencing a surge in refinery production, with throughput expected to ramp up to 16.8 to 17 million barrels per day. This increase in refining capacity, coupled with a decrease in US crude imports to 5.5 million barrels per day, will put a strain on commercial crude oil storage facilities.
As the inventory dwindles, the Energy Information Administration (EIA) reports will likely reflect a substantial drawdown on crude oil storage. Industry experts have projected that EIA reports may show a draw of up to 20 to 22 million barrels, with some analysts warning of a potential -10 to -12 million barrel draw with a simultaneous release of 10 million barrels from the Strategic Petroleum Reserve.
This level of drawdown would be unprecedented in recent history. Since the EIA began publishing weekly oil data in 1982, there have been only 41 instances of weekly crude oil draws exceeding 10 million barrels. The largest recorded draw was on July 28, 2023, and the current week’s report already ranks as the sixth largest.
Moreover, the Strait of Hormuz, a critical waterway for oil exports, remains closed due to ongoing tensions in the region. This development has contributed to a significant buildup of crude oil inventory on US shores. However, the impending release of the armada of empty Very Large Crude Carriers (VLCCs) headed for the US will exacerbate the already dire situation.
The decline in US crude oil storage will have far-reaching implications. Product storage levels are approaching seasonal lows, and the next few weeks are expected to see significant declines. This scenario is not comparable to the 2022 market dynamics, as the current situation is more pronounced and unprecedented.
Industry experts are cautioning against making comparisons to previous market conditions. This historic decline in US oil inventory levels will have significant implications for the energy market, and market watchers will be closely monitoring the situation to gauge its future trajectory.