U.S. Strategic Oil Inventories are Dangerously Low

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Written by Daniel Graeber for IIR News Intelligence (Sugar Land, Texas)

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Summary

With war again curbing energy supplies, the amount of oil stored in strategic reserves in the United States is close to the limit that would keep it functioning on an efficient basis, data show.

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Changing Import Structure

Members of the International Energy Agency (IEA) coordinated early in the year to tap their strategic reserves to offset the loss of crude oil due to fighting in the Middle East. While some vessels are making it through, the tacit closure of the Strait of Hormuz has stranded production from the likes of Iraq, Kuwait and even Saudi Arabia.

Total U.S. crude oil imports averaged 3.6 million barrels per day (bpd) over the seven-day period ending July 24, down about 12% from year-ago levels, U.S. federal data show. With Middle East producers largely sidelined, and no barrels arriving from Iraq or Saudi Arabia, the United States has drawn on crude from the Americas for refinery feedstock.

From Brazil, 269,000 bpd were delivered during the week ending July 24, compared to 70,000 bpd during the same period last year. Earthquake-ravaged Venezuela managed to deliver 673,000 bpd last week, compared to nothing last year, federal data show.

Both produce the heavier type of crude oil preferred by much of the U.S. refining sector. But against a drop in imports comes concerns about levels remaining in the Strategic Petroleum Reserve (SPR).

Federal data show there are 307 million barrels of oil left in the SPR, meaning it's effectively empty. Its peak capacity is 714 million barrels.

"The generally accepted operational minimum for oil in the SPR is between 250 million and 300 million barrels," said Hillary Stevenson, a vice president for energy intelligence at Industrial Info Resources. "The SPR needs a minimum volume of crude to pump and process oil efficiently."

IIR Energy's weekly report on refinery activity, meanwhile, found no major disruptions during the week ending July 24. There's a minimal amount of planned maintenance coming up as well, which could provide some supply-side relief.

War-Related Energy Impacts Spreading Across Middle East

Lower supplies, meanwhile, come as fighting has intensified in the Middle East with new airstrikes on Iran, tacitly in response to an attack on U.S. interests in Egypt.

On Wednesday, British maritime risk agency Ambrey reported that a U.S.-owned and -operated, Marshall Islands-flagged liquefied natural gas (LNG) floating storage facility was struck, and a second Greek-owned and operated Bermuda-flagged LNG tanker was hit by at least one drone, near the port of Damietta in Egypt.

The Damietta LNG plant, controlled by Italian energy company Eni with a 50% stake, can deliver as much as 5.5 metric tons per annum of gas in the liquid form. Attacks on Egyptian infrastructure followed an extension on force majeure declarations from QatarEnergy, which suffered drone strikes at its Ras Laffan North and Ras Laffan South facilities early in the conflict.

Elsewhere, Saudi Aramco was forced to shut down its Jazan refinery on Monday, after initially operating the refinery at reduced rates following a missile attack on July 25. Attacks also occurred at Saudi Arabia's Yanbu and Abqaiq industrial complexes.

"Attacks on Saudi Arabia's western energy infrastructure shows that both Eastern and Western flanks are under fire simultaneously, representing a new dimension of escalating tensions in the Middle East," Stevenson said in IIR Energy's IIR/DOE Weekly Refinery Report.

By the Numbers

• 56% of the U.S. SPR is gone
• 12% week-on-week decline in U.S. imports

Key Takeaways

• U.S. SPR is approaching the point where it can't function
• Supplies are increasingly scarce as fighting intensifies in the Middle East

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