Supply Risks Return To Center Stage As Crude Prices Accelerate

Crude oil prices are rallying with conviction this morning, pulling the rest of the petroleum complex with them in pre-market trading. Prompt month WTI and Brent contracts, which have rolled to from the August reference month to September yesterday, are both up 4.75%-5% to start the day. The American benchmark topped $90 this morning, while it’s European counterpart is knocking on the door of $100 for the first time since May.

Some analysts predicted $150 crude oil at the onset of the conflict surrounding the Persian Gulf, and while reaching that price level is unlikely, its increasingly viewed as a plausible scenario rather than a remote one, given the resumption of hostilities. The conflict spreading to the Bab al-Mandeb Strait, weak-to-non-existent Russian exports, and dwindling global oil stockpiles are all cited as reasons for higher crude oil prices in the near-term. The firs chart in the attached DOE file shows how low the U.S. is on crude oil, what it doesn’t show is that we are at lows not seen since 1983.

Tropical storm Bertha is continuing to churn off the Flroibama coast and is expected to bring heavy rains to southern Louisiana late this evening, before heading to the Houston area, blanketing refinery row. While Bertha isn’t expected to be an intense storm, any flood and power outages are real concerns for the refineries in the area. As of yesterday, there have already been four Texas plants that have reported issues, one of which was a loss of power, before the storm has arrived.

Notes on the yesterday’s DOE report:

Commercial crude stocks built on the net of import/export flows, the latter falling comfortably back into its 5-year range over the past few weeks after spending April and May at record highs. Storage increased in PADD 3 but fell elsewhere leaving each region sitting well below average levels. Production slipped a bit but is still well above historical trends as the drop came off an all-time high. Another 5 million barrels was released from the SPR for a net decline in total U.S. crude inventories, which remain at 43-year lows.

Refinery runs pulled back some with increases in PADDs 1 & 2 but declines elsewhere. PADD 1 is back at the high end of the chart range and PADD 2 has been on a 5-week run of seasonal highs kicked off by an all-time high posted 6 weeks ago. PADDs 3 & 4 are still running at seasonal 5-year highs despite the slow downs, while unplanned repairs at PBF Torrance dropped PADD 5 further below the 5-year range.

Refined products all saw increased demand last week, but diesel managed to build despite having the largest demand increase by volume. Imports increased substantially, most of which landed on the coasts, but export activity holding at the high end of the chart negated the bulk of the import gain. Production increased to a 2026 high but stock levels remain well below average across the country, with PADD 4 in particular sinking to a 13-year seasonal low. Total U.S. inventories are running just behind year-ago levels.

Gasoline stocks built as increased imports/decreased exports were only partially cut into by the uptick in demand. Production held above average, but total stock levels are still at seasonal 14-year lows. Each PADD aside from 4 is well below typical levels with PADD 3’s large increase leaving inventories still about 1.5 million barrels under the 5-year range.

Jet fuel stocks shed a little over a million barrels last week with higher imports and lower exports being wiped out by increased demand. The swings in import/export flows left both at seasonal highs while demand shot to an all-time high. Despite their declines, production held above the 5-year range and total stock levels are at a 16-year seasonal high.