E-Paper
Why is the US oil reserve at a 44-year low as crude prices surge above $100?
US oil reserve hits a 44-year low as crude prices surge above $100, while rising gas prices and Middle East tensions add pressure to the oil market.
Prefer HTon Google
The US Strategic Petroleum Reserve (SPR) has fallen to its lowest level in nearly 44 years. The reserve held 285.4 million barrels of crude oil in the week ending September 4, the lowest level since November 1982, according to data from the US Energy Information Administration (EIA).
The reserve lost another 1.2 million barrels in just one week. SPR stocks fell from 286.6 million barrels in the previous week to 285.4 million barrels by September 4. The drop is much bigger when compared with last year. The reserve held 405.2 million barrels a year earlier. That means the US has lost almost 120 million barrels, or around 30% of its stock, in just 12 months, according to the EIA data.
Why did the US oil reserve fall?
The fall is linked to a major US decision to release oil from the reserve. The US had committed to drawing down 172 million barrels from the Strategic Petroleum Reserve, according to Reuters. The SPR is now much lower even as oil prices are climbing. The reserve's decline comes at a time when crude prices have moved sharply higher, raising concerns about how much emergency oil the US has available if global supplies face another major disruption.
US oil stocks also fell
US commercial oil inventories have also fallen, although they are not at an unusually low level. Commercial crude inventories, which do not include the Strategic Petroleum Reserve, fell by 400,000 barrels during the week ending September 4 to 424.1 million barrels, according to the EIA.
Commercial crude stocks are still around the normal level for this time of year. The 424.1 million barrels were roughly in line with the five-year average, according to the EIA. US crude prices were already significantly higher at the start of September. West Texas Intermediate (WTI) crude was priced at $92.69 a barrel on September 4.
Also read: Why are US stocks falling today? Oil, 5% Treasury yields and AI fears hit Wall Street
Why are US oil prices rising?
WTI jumped more than $8 in just one week. The September 4 price was $8.12 higher than the previous week's level. Oil is also much more expensive than it was a year ago. WTI was $30.47 a barrel higher on September 4 than its price a year earlier, according to the EIA.
US gas prices are also rising
Higher crude prices are also showing up at US gas stations. The national average price for regular gasoline reached $4.157 per gallon on September 7. Gasoline prices rose sharply over both the previous week and last year. The national average increased by 8.6 cents from the previous week and was 96.5 cents higher than a year earlier, according to the EIA.
Saudi Arabia oil pipeline shutdown
Oil prices surged further this week because of a major supply concern in Saudi Arabia. Saudi Arabia shut down its East-West pipeline after drone attacks, pushing global oil prices higher, according to Quartz. The disruption pushed both major US and global crude benchmarks above key levels. Brent crude futures moved above $108 a barrel, while WTI futures rose above $103 a barrel.
US-Iran tensions add oil pressure
WTI crossing $100 was especially significant for the US market. US crude had not traded above $100 a barrel since May. Tensions between the US and Iran are also adding pressure to oil markets. A 60-day ceasefire between the US and Iran expired in August without a permanent agreement. The end of the ceasefire has added another source of uncertainty for oil supplies. With no permanent US-Iran agreement, concerns over the wider Middle East have added upward pressure to crude prices.
Also read: US 10-year Treasury yield hits 5%: Will oil prices and Fed rate decision push yields even higher?
US refineries are running hard
The US is still processing a very large amount of crude at its refineries. American refineries processed 17.6 million barrels of crude per day during the week ending September 4. Refinery processing increased from the previous week. The figure was 91,000 barrels per day higher than the previous week's level.
US refineries were operating close to full capacity. Refinery capacity utilisation stood at 97.8% during the week ending September 4. The US also imported more crude during the week. Crude oil imports increased by 53,000 barrels per day, reaching 6.8 million barrels per day.
What does the low oil reserve mean?
The key concern is the combination of a much smaller emergency reserve and rising oil prices. The SPR has fallen to its lowest level since 1982, while crude prices have surged because of growing supply and geopolitical risks.
The Strategic Petroleum Reserve is meant to provide emergency oil supplies when major disruptions threaten the US energy market. With stocks now around 285 million barrels, the US has significantly less oil stored in the reserve than it did a year ago.
For now, the fall in the SPR does not mean the US is running out of oil. Commercial inventories remain close to their five-year average, while US refineries continue to process nearly 17.6 million barrels of crude a day. But the timing is important because oil prices are rising at the same time that the emergency reserve is at a 44-year low. Any major disruption to global oil supplies could therefore put additional pressure on crude prices and US gasoline prices.
