Global oil inventories are depleting at the fastest rate on record, with a daily decline of 8.7 million barrels in May, as a blockade of a critical Middle East chokepoint tightens the market.
"The physical market continues to tighten," Goldman Sachs analysts Yulia Zhestkova Grigsby and Daan Struyven said in a May 20 report, noting that about two-thirds of the May inventory drop comes from a reduction in oil on water.
The primary driver is a blockade of the Strait of Hormuz that has reduced crude exports through the waterway to 5% of normal capacity. Brent crude futures were trading around $105 a barrel on Thursday, up more than 70% year-to-date but still below a wartime peak of over $126.
The rapid drawdown shrinks the market's buffer just as the U.S. summer driving season begins, a period of typically higher demand that could further strain inventories and support prices. The International Energy Agency (IEA) has warned that the market faces a "severe supply inadequacy" through October.
The strain on global supply is mirrored in the United States, where total crude inventories, including the Strategic Petroleum Reserve (SPR), fell by nearly 18 million barrels last week, according to the Energy Information Administration (EIA).
Stockpiles at the Cushing, Oklahoma delivery hub for WTI crude futures dropped by 1.6 million barrels, pushing inventories closer to what traders call "tank bottoms," or the minimum level required for operations. The record 9.9-million-barrel release from the SPR underscores the pressure on domestic supplies.
Despite gasoline prices hovering at four-year highs, U.S. demand remains resilient. Total product supplied, a proxy for demand, rose to 20.45 million bpd last week.
"Gasoline demand is up a little which is an accomplishment considering we are above $4.50 a gallon at the pump," said Bob Yawger, director of energy futures at Mizuho. This resilience heading into the peak summer demand season suggests little relief for falling inventories.
This article is for informational purposes only and does not constitute investment advice.
