As global oil prices continue to surge, dwindling U.S. oil reserves are exacerbating an already strained global supply.
In Cushing, Oklahoma, the delivery point for U.S. standard crude oil futures, oil levels have dropped to 22 million barrels, just slightly above the seasonal low of 2014. According to the EIA report, crude oil inventories in the Cushing region have declined in 12 of the past 13 weeks.
Industry insiders have noted that when Cushing's inventory falls within the 20-25 million barrel range, traders begin discussing the bottom of the inventory. Some market veterans are concerned that the de-stocking has been excessive, and Cushing's crude oil reserves are being drained.
In recent months, as both Saudi Arabia and Russia have intensified production cuts, the U.S. has been filling the market void, exporting over 4 million barrels daily to meet global demand.
Due to robust overseas exports and domestic demand, U.S. crude reserves have rapidly decreased. As U.S. oil serves as one of the benchmarks for crude prices, its impact has rippled across oil markets from Asia to the Middle East and Europe. Oil buyers, eager to secure supplies, are willing to pay higher premiums.
Reports indicate that the premium for WTI crude oil delivered in Asia in January was $9 per barrel, the highest this year. The price difference between Brent crude and Middle Eastern crude has risen to its highest level since February.
In the futures market, the tightening U.S. supply is reflected in prices. The price difference between U.S. WTI crude and the international benchmark Brent crude has narrowed to less than $3 per barrel, the smallest margin since May of last year.
The decline in U.S. oil reserves also impacts European supplies.
Gary Ross, an oil consultant with Black Gold Investors LLC, commented on the situation, noting the alarmingly low reserves in Cushing. He emphasized that if Cushing runs out, Europe will face a shortage due to its reliance on U.S. exports. If U.S. exports decrease, where will Europe source its oil?
There are signs that some European refiners are already paying higher premiums for spot purchases. Reports suggest that Angola's national oil company, Sonangol, sold four shipments in the past week at premiums of up to $1.50 per barrel, with three of those shipments potentially heading to Europe.
Despite soaring oil prices and urgent inventory needs, U.S. shale oil producers remain reluctant to increase production.
According to Baker Hughes data, in the U.S.'s most active oil field, the Permian Basin in western New Mexico and Texas, the number of drilling rigs for crude oil has decreased by about 12% to 314 since late April, even though U.S. oil prices have risen by approximately $13 per barrel during the same period.
Several oil executives have stated that despite further increases in global oil prices, most shale industries plan to remain steady. Most shale companies have committed to distributing the profits earned from high energy prices to investors through stock buybacks and dividends. Additionally, they face pressures from inflation and high interest rates.
Jack Williams, Senior Vice President of ExxonMobil, remarked on the situation, emphasizing the importance of capital efficiency and the long-term view of the business. He suggested that frequently adjusting drilling rigs is not a prudent strategy.
