Key Takeaways:
The US is draining its emergency stockpiles at a record pace to plug a global supply gap created by the Strait of Hormuz closure, but the buffer is running out.
US crude and petroleum product inventories fell to 1.57 billion barrels in the week ended May 29, the lowest level since 2004, according to Energy Information Administration data released Wednesday. Commercial crude stockpiles dropped 8 million barrels to 433.7 million, the sixth consecutive weekly decline and more than double the 3.3 million-barrel draw analysts had expected.
"The US is the last supplier standing, but that buffer is shrinking fast — and once it's gone, there are almost no alternatives left for buyers," said Matt Smith, director of commodity research at Kpler. "American crude prices must rise enough to discourage exports and slow the inventory drain."
The drawdown is being driven by a surge in US crude exports, which hit a record 5.9 million barrels per day in May, surpassing April's previous high of 5.2 million. Asia took 2.45 million bpd and Europe 2.4 million bpd, both all-time highs. Japan's US crude imports jumped 32 percent month-over-month to 808,000 bpd, while Italy imported a record 335,000 bpd. Bulgaria, Croatia, Turkey and Greece also emerged as rare transatlantic buyers.
The Trump administration has authorized the release of 172 million barrels from the Strategic Petroleum Reserve, with roughly 50 million already drawn down. SPR stocks now stand at 357.1 million barrels, the lowest since April 2024. Total US crude inventories sit 10.28 million barrels below the five-year average, while gasoline inventories at 214.16 million barrels are near six-month lows ahead of the peak summer driving season.
The $200 barrel scenario
The Strait of Hormuz, which carried roughly one-fifth of global oil supply before the US-Iran conflict erupted in late February, remains effectively closed. The disruption has removed about 17 million bpd from seaborne markets, with Iraq's production collapsing to 1.39 million bpd from a pre-conflict average of 4.1 million. Saudi Arabia has cut output by 20 percent despite running its East-West pipeline at full 7 million-bpd capacity to bypass the strait.
The price mechanism driving the export boom — a wide WTI-to-Brent discount — has narrowed from a 13-year high of $20.69 in March to about $6 in late May, suggesting exports may moderate in June. Energy Aspects expects US crude exports to fall to about 4.9 million bpd in June and 4.6 million in July. But the underlying supply gap remains.
"The US is acting as the world's lender of last resort for crude, but that role has a clear ceiling," said Bob McNally, president of Rapidan Energy Group and a former White House adviser. "If the strait doesn't reopen, oil could hit $200 a barrel this summer."
Brent crude traded at $93.73 a barrel Wednesday, down from an intraday high of $106.13 last week, as markets priced in hopes of a diplomatic resolution. But the last time US inventories were this low, in 2004, WTI crude averaged $41.51 a barrel — and global spare production capacity was far larger than today's.
The political stakes are rising. US regular gasoline averaged $4.44 a gallon last week, up roughly 50 percent since the war began, eroding voter approval of President Donald Trump's economic management ahead of November's midterm elections. Treasury Secretary Scott Bessent described the inflation spike as "transitory," but the inventory data suggests the pressure is building, not easing.
This article is for informational purposes only and does not constitute investment advice.
