WTI crude wavers near $78 as inventory draw meets OPEC+ hike

A surprise draw in US crude inventories and an OPEC+ production increase are pulling oil prices in opposite directions, leaving traders to weigh near-term tightness against future supply growth.

WTI crude hovered near $78 a barrel on Thursday as a sharper-than-expected drawdown in US stockpiles offset the bearish weight of an OPEC+ decision to boost output, keeping the market locked in a tug-of-war between supply constraints and growth expectations.

"The market is caught between two competing narratives — physical tightness in the US and the prospect of more barrels from OPEC+," said Phil Flynn, senior analyst at Price Futures Group. "The EIA data shows supply isn't deteriorating further, but Cushing inventories are getting uncomfortably low."

US crude inventories fell by 1.7 million barrels last week, the EIA reported Wednesday, undershooting the 2.6 million-barrel draw analysts had forecast. Stocks at Cushing, Oklahoma — the delivery point for WTI futures — have remained below 20 million barrels since mid-June, a level the EIA said may approach minimum operating requirements known as "tank bottoms." Brent crude traded at $83.62, down 1.31 percent, while WTI settled at $78.53, a 1.02 percent decline.

The conflicting signals come as the US-Iran conflict continues to disrupt shipping through the Strait of Hormuz, a chokepoint that handled about one-fifth of the world's crude before the war. Goldman Sachs warned that if Persian Gulf exports remain constrained, Brent could breach $110 a barrel in the fourth quarter. At the same time, the US Strategic Petroleum Reserve has fallen to 319.5 million barrels, its lowest since 1983, leaving limited room for emergency releases.

Cushing Bottoms Test WTI Structure

The dwindling inventories at Cushing have begun to distort the usual pricing relationship between US and global benchmarks. WTI briefly traded at a premium to Brent in mid-June, an uncommon inversion that reflected exceptionally tight domestic supply. The EIA said it is reviewing the results of a pilot study to better understand minimum working crude inventory levels at the hub, after stocks fell to levels that may constrain normal pipeline and pump operations.

According to the EIA's Weekly Petroleum Status Report, Cushing inventories have stayed below 20 million barrels since the week ended June 19. Storage terminals require a minimum volume of crude — known as "tank bottoms" — to keep pumps and pipelines operating. Once inventories approach those levels, some oil becomes effectively inaccessible even though storage tanks are not technically empty.

OPEC+ Supply Looms as Geopolitical Risk Persists

The OPEC+ decision to increase production adds a bearish layer to the outlook, even as geopolitical risks remain elevated. The US military launched a fresh wave of strikes against Iranian coastal defense systems near the Strait of Hormuz on Tuesday night, a seven-hour operation targeting cruise missile storage and launch sites. Iran's Revolutionary Guard responded by warning it would close other export routes and announced retaliatory strikes against US military targets in Bahrain, Kuwait, and Jordan.

Shipping traffic through the strait remains severely disrupted. Only six tankers traversed the waterway on Sunday with their Automatic Identification Systems turned on, compared with a daily average of 25 vessels in the preceding seven days. Iran's crude exports have averaged roughly 1.5 million to 2 million barrels per day over the past two weeks, according to UBS analyst Giovanni Staunovo, as a US naval blockade of Iranian ports continues.

Goldman Sachs estimated that Persian Gulf crude exports have fallen back below 50 percent of pre-war levels in the past week, to around 11 million barrels per day, after recovering to more than 80 percent following a US-Iran memorandum of understanding in June. If the recovery stalls, the bank said, Brent could surpass $110 a barrel by the fourth quarter.

The US Strategic Petroleum Reserve, meanwhile, stands at 319.5 million barrels, approaching the 250 million-barrel safety floor identified by the Government Accountability Office. At a release rate of 1 million barrels per day, the reserve could sustain operations for a maximum of 60 more days before facing technical failures, according to Michael Lynch, president of Strategic Energy & Economic Research.

This article is for informational purposes only and does not constitute investment advice.