Key Takeaways:
Cushing crude inventories fell to about 20 million barrels, the lowest operational level in years, sending WTI up 4% and raising the risk of a delivery squeeze.
WTI crude jumped 4% to $78.65 a barrel after data showed inventories at the key Cushing, Oklahoma storage hub fell to about 20 million barrels, approaching minimum operating levels that threaten physical delivery of WTI futures contracts. Brent crude rose 4.5% to $82.74 a barrel.
"The Cushing drawdown is the most immediate physical constraint in the US oil market right now," said Omar Tariq, energy analyst at Edgen. "When inventories approach these levels, the risk of a delivery squeeze on the WTI contract becomes very real."
The decline at Cushing, the pricing point for US West Texas Intermediate futures, comes as total US crude inventories — including commercial stocks and the Strategic Petroleum Reserve — fell 79 million barrels to 776 million barrels, the lowest since 2023, according to Department of Energy data. The SPR alone dropped to 340.3 million barrels, the lowest since 1983, after the government loaned 172 million barrels to help tame fuel prices that hit multi-year highs during the Iran war. The 8.9-million-barrel weekly draw from the SPR was the third steepest on record. API data showed US crude stocks fell 8.3 million barrels in the week ended June 12, exceeding expectations for a draw of 4.6 million barrels.
The inventory squeeze at Cushing threatens to exacerbate price volatility just as the US and Iran reached a peace deal that could reopen the Strait of Hormuz and eventually add supply to global markets. Goldman Sachs cut its Brent forecast to $80 a barrel for the fourth quarter from $90, while the IEA warned of a supply overhang of 6 million barrels per day next year as global supply surges 8 million bpd against demand growth of just 2 million bpd. Citi also lowered its Brent forecasts, citing normalization of flows through the Strait of Hormuz under the US-Iran memorandum of understanding.
The last time Cushing inventories fell to similar levels in 2023, the WTI contract experienced a brief but sharp backwardation spike that pushed front-month prices above $90 a barrel. The current situation is compounded by strong export demand for US crude to fill supply gaps caused by the Iran war, which began at the end of February and effectively blocked the Strait of Hormuz. While the peace deal signed June 14 allows Iran to resume oil sales, industry officials say a full return to pre-war production and refining levels is likely to take weeks or months, leaving near-term supply constrained.
The combination of depleted Cushing stocks, record SPR draws, and uncertainty over the pace of Iranian supply returning to market creates a volatile setup for oil prices. If Cushing inventories continue to decline, the WTI contract could see further upward pressure as traders price in the risk of physical delivery defaults. The EIA's official weekly inventory report, due later today, will provide the next data point on whether the drawdown is accelerating.
This article is for informational purposes only and does not constitute investment advice.
