U.S. crude stockpiles fall 8.3 million barrels as API flags tight supply

U.S. crude oil inventories extended their decline for an eighth consecutive week, with the American Petroleum Institute reporting an 8.3 million barrel drawdown that pushed stockpiles further into deficit territory as the Trump administration's Strategic Petroleum Reserve releases drain emergency supplies.

"The SPR releases, combined with releases by other governments and China reducing its exports, have prevented the Armageddon scenario of $150 oil from happening to date," said Andy Lipow, president of Lipow Oil Associates. "But if we were to get a major hurricane in the Gulf of Mexico that shuts production down for several weeks, that buffer would no longer be there."

The API data showed crude inventories fell 8.33 million barrels for the week ended June 12, following a 9.12 million barrel decline the prior week. Stockpiles at the Cushing, Oklahoma, hub — the delivery point for WTI futures — dropped 1.52 million barrels, extending the previous week's 1.13 million barrel decline. Gasoline inventories rose 2.48 million barrels, snapping a prior week decline of 1.19 million barrels, while distillate stockpiles fell 1.52 million barrels. The two-week combined drawdown of 17.45 million barrels is the steepest since the early stages of the Russia-Ukraine conflict in 2022.

The drawdown comes as the Strategic Petroleum Reserve has fallen to 340.3 million barrels, the lowest since 1983, after the Trump administration released 8.9 million barrels last week alone. The SPR is down 75 million barrels, or 18%, since the war with Iran started in late February. At current depletion rates, the reserve is approaching the 20% operational minimum, according to Mike Sommers, CEO of the American Petroleum Reserve. The last time the SPR held less crude was July 1983, when the Reagan administration was filling the reserve for the first time and the U.S. economy was significantly smaller. The Trump administration has pledged to release 172 million barrels in total, a pace that exceeds the Biden-era releases following Russia's invasion of Ukraine.

Brent crude settled at $78.96 a barrel Tuesday, down 5.1%, while WTI crude fell 5.1% to $76.65 — both below $80 for the first time since early March. The decline was driven by optimism that a tentative U.S.-Iran deal could reopen the Strait of Hormuz at the end of the week, which would restore global oil flows. Significant hurdles remain in the negotiations, including what to do with Iran's nuclear program, but Wall Street is betting on a long-term resolution to a conflict that has worsened inflation worldwide. Still, the inventory data suggests underlying supply tightness that could resurface if geopolitical tensions escalate or a hurricane disrupts Gulf production. The last time crude prices fell below $80 while inventories were drawing this sharply was in mid-2023, when OPEC+ production cuts created a similar supply-demand tension.

The broader market reflected the crosscurrents. The S&P 500 slipped 0.6% to 7,511.35, while the Dow Jones Industrial Average rose 0.6% to a record 51,999.67. The 10-year Treasury yield fell to 4.43% from 4.47%, as lower oil prices eased inflation concerns. The VIX edged up to 16.41, suggesting cautious positioning ahead of the Federal Reserve's rate decision Wednesday, where the central bank is widely expected to hold its benchmark rate steady under new Chair Kevin Warsh. High yields in bond markets caused by expensive oil prices have threatened to slow economies, and a report Tuesday showed construction crews broke ground on far fewer new U.S. homes in May than economists expected.

The U.S. Energy Information Administration will release its official weekly inventory report Wednesday at 10:30 a.m. EDT. Analysts surveyed by The Wall Street Journal expect commercial crude inventories to have fallen by 3.5 million barrels, with refinery utilization holding near 95.4%. If the EIA confirms the API's signal of tightening supply, the current oil price weakness may prove short-lived, particularly with hurricane season threatening Gulf production and the SPR buffer at multi-decade lows. Lipow said SPR releases may have to slow once the administration is done releasing the 172 million barrels it pledged in March, meaning the supply cushion will shrink further just as seasonal demand peaks.

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