US oil prices fall briefly below $70 as stocks at storage hubs dwindle
The resurgence of tanker traffic through the Strait of Hormuz has pushed U.S. The price of crude oil briefly fell below $70 a barrel on Wednesday, despite the fact that inventories at Cushing's crude storage facility in?Oklahoma had dropped to their lowest level in 12?years. The U.S. Energy Information Administration announced on Wednesday that oil stocks at Cushing had fallen to 19?million barrels, their lowest level since 2014. West Texas Intermediate (WTI), the benchmark for domestic crude oil, was still trading as low as $69.63 per barrel before settling to $70.34. Cushing is one of the largest storage hubs around the world. Inventories there are a good indicator of supply, and any shortage would push prices up. U.S. crude oil prices have indeed risen to $119.48 in the last few weeks since the U.S. - Israel war began. However, releases from strategic petroleum reserves by the government have helped limit this price spike.
Enverus's Carl Larry, a sales manager for energy market analytics, said: "Fundamentally, we should be higher, considering Cushing and the replacement of lost barrels. There are also issues with entering and leaving the Strait of Hormuz."
"The price drop is more a result of sellers' sentiment. Larry said that money is trying to push futures down in hopes of finding a weak support, and then capitalizing on a rebound. The Cushing storage volumes have been depleted due to the strong export demand coming from the U.S. Gulf Coast, and weak import flows from Canada because of unplanned production interruptions. Now, they are below the threshold of 20 million barrels that analysts and traders consider to be the minimum amount for normal operations. Oil in a tank at Cushing that is below 10% or 20% of its capacity becomes hard to remove. This also raises concerns about quality, as sediments and water often settle on the bottom of storage tanks.
Strategic Petroleum Reserve
The U.S. Government's release from its emergency reserves has helped to cushion supplies throughout the country. These releases are part of a government agreement to release 172 millions barrels to fill a global supply gap and control prices in the Iran War.
Analysts at the research firm Energy Aspects said last week that the U.S. Gulf Coast appears to be relatively well-supplied thanks to strategic petroleum reserves released and weakening fundamentals for exports. EIA data shows that Gulf Coast inventories were at 239.8m barrels by the end of the week. This is the lowest level since mid-February before the start of the war. U.S. exports have dropped from April's record highs of 6 million barrels per day to 4.7 million barrels a day.
A senior trader stated that the market understood that the marginal barrel was in Gulf Coast exports, and not at Cushing.
CUSHING IS LESS IMPORTANT Lower U.S. oil prices reflect the waning significance of Cushing, as more oil is exported to the Gulf Coast. The Permian Basin, which is the largest U.S. Oilfield, has seen a surge in shale oil production. But much of this oil is being stored closer to Gulf Coast export ports or refiners within the region rather than the flagship Cushing hub.
James Cordier is the head of investment strategy for OptionSpreaders.com. He said that while supply reports from Cushing used to be eagerly anticipated, they are now one of the less followed indicators in the energy sector. Analysts and traders say that U.S. oil exports should ease next month and that more oil will flow to Cushing. This is because more supply was released globally after the interim peace agreement between the U.S.
According to Energy Aspects, the Cushing stockpile is expected to grow by 800,000 barrels in the next week. Reporting by Arathy S. Somasekhar, Houston; editing by Nathan Crooks & David Gregorio
(source: Reuters)
