Key Takeaways:
The U.S. Strategic Petroleum Reserve has fallen to 316.5 million barrels, its lowest level in 43 years, as the Iran conflict drains emergency stockpiles.
The U.S. Strategic Petroleum Reserve has fallen to 316.5 million barrels, the lowest since April 1983, after five months of emergency releases to offset supply disruptions from the Strait of Hormuz conflict.
"The situation is still far from normal. Shipping costs are incredibly high right now, and you still can't find enough shippers willing to go back in there," Amrita Sen, founder and director of research at Energy Aspects, told CNBC.
Inventories have dropped by 98.9 million barrels since the U.S.-Israeli campaign against Iran began in late February, according to Energy Information Administration data through July 10. Total U.S. oil holdings, including commercial and strategic stocks, stand at 730.8 million barrels — the lowest since 1984. The drawdowns are part of a U.S. commitment to release 172 million barrels under an International Energy Agency agreement to tap 400 million barrels from member nations' emergency reserves.
With the Strait of Hormuz operating at a fraction of normal capacity — no very large crude carriers or LNG tankers transited the waterway for a second day on July 16 — the U.S. is burning through its remaining strategic buffer at a time when global supply routes remain under threat. The reserve can hold up to 727 million barrels, but sizing studies from the 1970s recommended a minimum operating level of 250 million barrels, leaving limited room for additional draws.
Strait of Hormuz Remains Severely Constrained
Maritime traffic through the Strait of Hormuz has collapsed since the ceasefire between the U.S. and Iran effectively broke down in early July. The U.S. Central Command reinstated a blockade on vessels entering or exiting Iranian ports, while President Trump briefly proposed a 20 percent fee on vessels traversing the waterway before withdrawing the plan after consulting with Persian Gulf allies, according to the Associated Press.
Six tankers crossed the strait on July 12 without their automatic identification systems active, according to Kpler data — compared with an average of 25 over the seven days before the conflict escalated. Before the war, about 25 percent of the world's seaborne oil trade transited through the waterway.
"Where we are seeing ships going through is in the northern route, which is effectively the Iran-approved and controlled route where ships are moving under government-to-government agreements," Richard Meade, editor-in-chief of Lloyd's List, told CNBC International. "What has stopped is the ships moving through the southern route. Shipping is again in a state of limbo."
SPR Infrastructure Under Strain
The rapid depletion has exposed structural problems at the Strategic Petroleum Reserve. A Government Accountability Office report released in late June found that the SPR experienced 16 major equipment failures since 2013, including a January 2025 spill of about 170 barrels of crude at a Texas facility caused by a split pipe. The GAO recommended that Congress temporarily limit nonemergency sales and authorize a funding mechanism for maintenance costs.
Oil prices have responded to the heightened supply risk. West Texas Intermediate crude for August delivery settled at $78.14 a barrel on July 17, up 9.4 percent, while Brent crude for September delivery closed at $83.30, up 9.6 percent. JP Morgan strategists warned clients that the oil market may face "a temporary glut as trapped oil finally re-enters a system that has already spent months learning how to function without it," noting a sharp drop in Chinese oil demand since the conflict began.
The U.S. remains the world's largest crude oil producer, but that does not shield it from global pricing dynamics. "Even if domestic supply remains sufficient, any sustained disruption to flows through the Strait of Hormuz would push Brent and WTI benchmarks higher, increasing fuel costs worldwide," said Hani Abuagla, senior market analyst at XTB MENA. That could keep inflationary pressures elevated and complicate the Federal Reserve's rate path.
This article is for informational purposes only and does not constitute investment advice.
