US oil inventories at critical lows, price surge seen within 3 weeks

US crude stockpiles are approaching tank-bottom levels as Strait of Hormuz disruptions drain supply ahead of peak summer demand, the American Petroleum Institute warned.

US oil inventories have fallen to critically low levels as Strait of Hormuz disruptions drain stockpiles, threatening a price surge within weeks that could raise gasoline costs for consumers, API CEO Mike Sommers said.

"The industry is sounding the alarm — inventories are approaching tank bottom and we could see a significant price spike if these supply draws continue," Mike Sommers, chief executive officer of the American Petroleum Institute, said on Fox Business's "Mornings with Maria."

Industry executives said the loss of oil transiting the Strait of Hormuz is draining petroleum inventories at an accelerating pace, with global stockpiles at risk of hitting critical levels ahead of the peak summer driving season. The drawdown comes as US crude production faces headwinds from refinery maintenance and export demand, compounding the supply tightness.

Higher gasoline prices would feed into broader inflationary pressures, potentially complicating the Federal Reserve's rate path. For energy companies, the supply crunch represents a windfall — Exxon Mobil Corp. and Chevron Corp. stand to benefit from rising crude prices — while consumer-facing sectors and airlines face margin compression from elevated fuel costs.

The warning from the API, which represents America's oil and natural gas industry, highlights a supply environment that has shifted dramatically in recent weeks. The Strait of Hormuz, a chokepoint through which about one-fifth of global petroleum consumption transits daily, has become the focal point of supply concerns as geopolitical tensions disrupt tanker movements. Industry data shows stock draws accelerating beyond seasonal norms, with inventories approaching levels that typically trigger operational constraints at storage facilities.

Global oil inventories could hit critical levels before the peak summer demand period if stock draws continue at their current pace, the head of the API said. The last time US inventories approached similar lows was in 2022, when WTI crude surged above $120 a barrel following Russia's invasion of Ukraine. That episode pushed the national average gasoline price above $5 a gallon for the first time, according to AAA, and contributed to inflation reaching a four-decade high of 9.1 percent.

For American drivers, the impact could be immediate. The national average gasoline price has already moved higher in recent weeks, and analysts expect further increases if crude benchmarks continue their upward trajectory. The supply tightness also carries implications for US energy policy, with the Strategic Petroleum Reserve at its lowest level in four decades, limiting the government's ability to intervene if prices spike. The Biden administration drew down the reserve by more than 200 million barrels following the 2022 price surge, and refilling it has been slow because of sustained high prices.

Industry leaders have urged the White House to address the inventory crunch, warning that failure to act could result in an imminent price surge. The API has called for expanded domestic drilling permits as a structural solution, though regulatory timelines remain a bottleneck. US crude production has risen to record levels above 13 million barrels per day, but executives argue that permitting delays and regulatory uncertainty are constraining the industry's ability to respond to supply shocks.

The implications extend beyond the pump. Higher energy costs act as a tax on consumer spending, potentially slowing economic growth just as the labor market shows signs of cooling. Airlines, trucking companies, and chemical manufacturers — all heavy consumers of petroleum products — face margin pressure if crude prices sustain their upward move. For oil producers, the environment is more favorable: rising prices boost cash flows and could accelerate share buyback programs that have become a centerpiece of the sector's investor appeal.

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