Energy shock pushes US oil reserves to two-decade low

US oil and petroleum product inventories have fallen to their lowest level in two decades as Donald Trump’s Iran war drives a global supply squeeze, prompting record exports and renewed warnings over rising energy prices.

US government data published on June 3 showed total stocks of crude and petroleum products such as petrol dropped by 10.6 million barrels last week to 1.57 billion barrels — the lowest level since 2004, Financial Times reports.

The decline has triggered warnings from analysts that oil prices could surge sharply again within weeks. US crude rose 2.6 per cent in afternoon trading on June 3 to $96.17 a barrel.

Bob McNally, president of Rapidan Energy Group and a former White House adviser, warned prices could reach $200 per barrel this summer unless the Strait of Hormuz — the key Gulf shipping route affected by the conflict — is reopened.

“You start to raise the risk of spillover into other sectors, the economy and financial system … it detonates fragilities in the broader economy and financial system,” McNally said.

The fall in inventories has reversed gains built up during the US shale boom, which turned the country into the world’s largest oil producer and a major exporter.

Last week’s drop included a 16 million barrel fall in commercial and government crude stocks, driven by rising exports to Asia and Europe as buyers rush to replace lost Middle Eastern supplies.

US crude shipments surged from 4.4 million barrels per day to 5.8 million b/d, according to the Energy Information Administration, outpacing production in many OPEC countries.

Analysts said the US is increasingly acting as “the lender of last resort for global oil markets,” helping offset supply losses from the Middle East.

Edward Hayden-Briffett of The Officials, a division of Onyx Capital Group, said: “The US is acting like the lender of last resort for global oil markets, acting as a stabiliser and providing a buffer to offset Middle Eastern supply loss.”

However, he warned the buffer is shrinking as the Strategic Petroleum Reserve is drawn down. “As that buffer decreases, it becomes a stressor rather than a reassurance,” he said.

The US has released about 50 million barrels from the SPR and authorised a total drawdown of 172 million barrels.

Analysts warned continued strain could push fuel prices higher during the US driving season and increase political pressure ahead of November’s midterm elections.

Matt Smith of Kpler said: “The US is the supplier of last resort and is better positioned than pretty much every other country in the world given its large refining capacity and domestic production.”

“But what this means is US inventories are being drawn down to critically low levels … When US exports slow, the music stops: buyers have very few other alternative suppliers to turn to.”

By Vafa Guliyeva