Key Takeaways:
US crude inventories fell for an eighth straight week as the EIA warned OECD stockpiles are heading toward multi-decade lows.
US crude inventories fell 7.2 million barrels last week, more than double analyst estimates, as the Strategic Petroleum Reserve dropped to its lowest level since August 2023 and the EIA warned OECD stockpiles are heading toward multi-decade lows.
"The rapid inventory drawdown, which is needed to make up for 11 million barrels a day of lost Middle Eastern output, creates the foundation for a sharp increase in oil prices in the months ahead," the EIA said in its monthly Short-Term Energy Outlook released Tuesday.
Analysts surveyed by Bloomberg had expected a 3 million barrel decline, while the prior week saw a 7.97 million barrel draw. API data released Tuesday showed an even steeper 9.12 million barrel decline, with gasoline inventories falling 1.19 million barrels and distillates rising 1.32 million barrels. Cushing crude stocks, the delivery hub for WTI futures, fell 1.125 million barrels. The SPR shed another 7.9 million barrels to 349.2 million, down 376 million barrels from maximum capacity. US production edged lower to 13.707 million barrels per day from 13.715 million bpd a week earlier.
The EIA projects OECD oil stockpiles will fall below 2.3 billion barrels by December, the lowest since records began in 2003, as 11 million bpd of Middle Eastern production remains offline due to the Iran conflict and restricted passage through the Strait of Hormuz. Brent crude is expected to average around $105 a barrel in June and July, well above Tuesday's futures price of $91.39. The agency said marine traffic through the waterway is unlikely to stabilize before early 2027, suggesting elevated prices could persist for an extended period.
The last time OECD inventories approached these levels was in 2003, when global oil demand was roughly 80 million bpd — about 23 million bpd less than current consumption, making the effective supply buffer even thinner than the headline number suggests. Global oil demand is expected to shrink by 1.1 million bpd in 2026, the first annual decline since the pandemic-related slump of 2020, as high prices and government conservation initiatives curb consumption.
Brent crude traded at $91.39 a barrel Tuesday, down 3 percent on the day, while WTI fell 3.5 percent to $88.12. Both benchmarks have declined roughly $2.50 to $4 per barrel since last Wednesday, as markets weighed the prospect of a US-Iran deal to reopen the Strait of Hormuz against the reality of continued supply losses. The EIA noted that while negotiations have been reported, no agreement has been finalized, and most regional production remains shut in.
This article is for informational purposes only and does not constitute investment advice.
