U.S. Strategic Oil Reserves Lowest in Nearly 40 Years

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

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Summary

The United States supported the global market shortage triggered by the war in the Middle East by releasing oil from its strategic reserves. Those reserves are now at their lowest level since 1983.

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Supply-Side Pressures Outlast Fighting

While traffic concerns are apparently easing in the Strait of Hormuz, federal U.S. data show strategic reserves of crude oil are at their lowest level in more than 40 years.

Federal data from Monday show the Strategic Petroleum Reserve (SPR) holds 340.3 million barrels. That's down from June 5 levels of 349.2 million barrels for the lowest level since 1983. The SPR has a peak capacity of 714 million barrels.

A coordinated response from members of the International Energy Agency (IEA) called for about 420 million barrels from strategic reserves. That's the amount of oil that would normally move through the Strait of Hormuz over the span of 21 days. The conflict has lasted now more than 100 days.

Products are nevertheless starting to move through the Strait after the United States and Iran agreed to a 60-day truce via a memorandum of understanding (MOU) set for a Friday signing in Geneva. Specifics are scarce, though U.S. President Donald Trump during the weekend said vessels should start revving up their engines.

On Monday, the Disha, a vessel laden with liquefied natural gas (LNG) made it through the chokepoint to become the first such vessel to make the crossing since the announcement of an MOU. The vessel was bound for a regasification terminal in India.

Shippers, however, remain cautious. On Monday, the United Kingdom Maritime Trade Operations Center warned of hostile action against mariners traversing the coast of Yemen, where the Houthi rebel group enjoys backing from Iran.

Elsewhere, the Joint Maritime Information Center, according to media reports, advised against moving through the Strait of Hormuz or surrounding waterways without explicit permission. The threat level, the group said, remains "SEVERE" ahead of the signing ceremony on Friday.

Information from the IEA, meanwhile, found an average of 564 ships per week made it through the Strait between January 1 and February 27. Joint U.S.-Israeli airstrikes began at the end of February, and to June 7, there were 39 ships per week that made it safely.

Normal is a Long Ways Off

With U.S. strategic inventories depleted, the IEA had warned that global supplies were down by 4 million barrels per day (bpd) during the height of the conflict. It will take months for the traffic jam to clear and perhaps years before some of the refineries damaged during the fighting are back online.

On Tuesday, IIR Energy reported that Persian Gulf Star Oil Company, an Iranian refiner, was running its Bandar Abbas Refinery at reduced rates possibly through July after suffering an unplanned shutdown in April.

IIR Energy in its weekly report on domestic inventories found stockpiles, not counting the SPR, declined by 7.3 million barrels over the week ending June 5. The amount of feedstock running to national refineries, meanwhile, increased 81,000 bpd from the prior week to reach 16.9 million bpd.

Domestically, there are few refinery issues that would spark any supply-side concerns. Consumers, however, may finally be curbing their appetite as the amount of gasoline supplied to the market over the four-week period ending June 5 was down 0.5% from the same period last year.

Crude oil prices continued to plummet. West Texas Intermediate, the U.S. benchmark for the price of crude oil, was down more than 4% in early Tuesday trading to move near $77 per barrel, the lowest level since early March. The American Auto Club put the national average retail price at $4.04 for a gallon of regular unleaded, down about 3% from this time last week.

By the Numbers

• $77 for WTI
• 49% of SPR is gone

Key Takeaways

• Energy markets won't recover overnight
• Traffic barely moving through Strait of Hormuz

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