FX foreign exchange analysis: The plunge in U.S. crude oil inventories has pushed up oil prices

Since mid-July,U.S. commercial crude inventories have fallen by 34 million barrels, giving the impression that the market is tightening and driving spot and calendar spreads back up.

According to data released this week by the U.S. Energy Administration (EIA),Commercial crude oil inventories have declined in five of the last six weeks.

Commercial crude oil accounted for the entire decline in total inventories over the same period, falling by 19 million barrels since July 14, increasing production by 12 million barrels and strategic inventories by 3 million barrels.

On July 14, its inventories were 22 million barrels above the 10-year seasonal average, but as of August 25, that figure had narrowed to 1 million barrels.

The recent decrease reversed the trend of increasing inventories since the end of April.

Due to this, since July 14,In recent months, U.S. crude oil futures prices rose by nearly $7 per barrel, an increase of 9%.It is up nearly $15, or 22%, from its recent low on June 27.

In addition,Hedge funds increased their U.S. crude futures and options positions to 134 million barrels on Aug. 22 from 46 million on June 27。

Saudi Arabia made an unexpected move! Cushing crude oil inventories fell

The decrease in inventories was mainly due to the depletion of inventories at oil depots near Cushing, Oklahoma. Cushing is the delivery point of the US crude oil futures contract on the New York Mercantile Exchange.

Since July 14, Cushing crude oil inventories have declined in five of the last six weeks, a cumulative decrease of 9 million barrels, a decrease of 24%.

Due to low inventory levels, the three-month calendar spread for U.S. crude oil futures narrowed to a spot premium of $1.14 per barrel on August 25, higher than the small futures premium at the end of June。

While U.S. crude inventories fell, Saudi Arabia and Russia cumulatively further cut production by about 75 million barrels in July and August.Saudi Arabia has also raised its official selling price to U.S. buyers well above that of Asian refiners to steer its crude exports away from the United States.

U.S. crude and other oil inventories are the most compelling part of the global oil market because they report with the least latency on a weekly basis, while other countries report much later on a monthly basis.

Traders and investors typically view changes in U.S. inventories as an indicator of changes in the global balance of production and consumption.

The continued decline in U.S. crude oil inventories is usually interpreted as a sign of a shortage in global marketsThis led to an increase in spot prices and spreads.

For the same reason,Any oil producer, trader, or investor who wants to drive prices and spreads up quickly is likely to focus on reducing U.S. inventoriesRather than reducing less visible inventories in Europe and Asia.

U.S. net crude oil imports are sluggish

Despite the drawdown in inventories, U.S. net crude oil imports remain subdued as exports continue to grow at a relatively rapid rate while imports remain low.

According to the average of weekly preliminary data for August,Net crude oil imports averaged just 2.90 million barrels per day in August.

Net imports increased slightly from 2.70 million b/d in the same month of 2022, but below 3.20 million b/d in 2021 and 4.20 million b/d in 2019.

The shift in the US SPR has increased upward pressure on oil prices

The U.S. Department of Energy released nearly 26 million barrels of crude oil from the Strategic Petroleum Reserve (SPR) in the first six months of 2023, for a total of 247 million barrels since early 2022.

The release of crude oil has increased the amount of crude available to traders and refiners, thus increasing downward pressure on spot prices and calendar spreads.

This offsets oil shortages and price pressures caused by Russian-Ukrainian and US and European Union sanctions against Russia.

But the release of crude oil from SPR was largely completed by the end of June, after which the U.S. Department of Energy began to shift to increasing SPR.It is adding nearly 3 million barrels as part of its plan to gradually replenish reserves when oil prices are relatively low.

FXTForeign exchange investment indicates that,The shift from strategic inventory release to inventory accumulation has further tightened the supply of crude oil in the commercial market, increasing upward pressure on prices and spreads.