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International benchmark Brent crude oil futures closed north of $89.50 per barrel yesterday evening, a five-month high. At the same time, GasBuddy indicated that national average gasoline price across the US reached a six-month high of $3.58 per gallon, up by more than 2% YoY. Gasoline retailers tracked by the EIA are selling for slightly less at $3.52, but this figure has still risen almost 14% in the year-to-date period. Narrowing petroleum product inventories appear to be igniting a fire under energy prices.
US gasoline inventories fell for the eighth time in nine weeks throughout the seven days to March 29, decreasing by -4.256 million barrels. More gasoline has been drained from commercial stockpiles in the past nine weeks (-26.318 million barrels) than in any other identical period throughout the past five years. MRP has suggested before that the ongoing drain of American gasoline stockpiles can be partially ascribed to an increased pace of exports recently. That may be bolstering oil futures in spite of a net increase in US inventories of crude oil throughout 2024. New EIA data shows total US exports of finished motor gasoline in the six months to January reached their highest level since April at 156.2 million barrels.
Deep declines in gasoline stocks mean that higher levels crude oil will need to be processed to fill the gap, but US exports of crude oil have also been surging lately. The six-month sum of overseas shipments rose to an all-time high of more than 765.4 million barrels in the latest data release. Though the US is on track to produce more crude oil in 2024 than in any other year before it, the share of monthly exports relative to output remained very elevated at 32.3% in January. December’s export/production ratio was calculated at a record 34.0%.
Throughout the past several months, MRP has repeatedly highlighted an ongoing wave of drone attacks that have now targeted almost half of Russia’s 32 major oil refineries, reducing Russian oil refining capacity by 14%, and has resulted in an ongoing suspension of the country’s fuel exports until at least September. We’ve posited that these disruptions could be exacerbating already elevated demand for US gasoline exports, pushing energy prices up further. In March, it was reported by the Financial Times that the US was urging Kyiv to halt attacks on Russia’s energy infrastructure, due to the risk of retaliation against energy infrastructure relied on by Ukraine’s western allies – which has now come to pass in Russian missile bombardments of underground natural gas storage in Ukraine. Further targeting of critical pipelines that run through Russia and Ukraine could still be on the table.
Ukrainian officials have dismissed any concerns about their strategy, continuing their regime of unconventional warfare against one of Moscow’s primary sources of revenue by hitting Russia’s third-largest refinery with a long-range drone strike this week. Reuters reporting suggests this latest operation may not have been the most devastating in terms of material damage, but it showed Ukraine’s special forces have the capability to reach targets as deep as 1,300km behind Russia’s border. Previous drone strikes on Russian energy infrastructure had only reached a maximum distance of approximately 850km.
The FT noted that the White House has become “increasingly frustrated” by the drop in oil and gasoline output that will likely put further strain on global supplies in the midst of an election year for the incumbent President. Oil prices are also being bolstered by building tension in the Middle East, as Israel’s war in Gaza and air strikes on regional adversaries like Syria and Lebanon are stoking increasingly aggressive rhetoric from Iran. If geopolitical developments outside of the White House’s control will not play out in the US’s favor, the administration appears to be taking some action domestically to wrangle rapidly increasing energy prices, which not only carry electoral implications, but threaten to derail the nation’s progress in bringing down inflation.
US Energy Secretary Jennifer Granholm stated earlier this month that the government has secured a total of 30 million barrels in repurchases for the country’s Strategic Petroleum Reserve (SPR), which has received delivery of 16.9 million of those barrels over the past eight months. However, the Department of Energy (DoE) has announced that solicitations for a further 3 million barrels, slated for delivery in August and September, would not be awarded due to prices rising too far above the price level targeted by the administration. The White House had originally planned to begin re-filling the SPR for less than $72.00 per barrel in 2022, but that target became untenable and was raised to $79.00 in 2023. Now that US benchmark WTI crude futures have jumped past $86.00 per barrel in recent days, it appears the administration has become concerned about the amount it is spending to rebuild its relatively narrow crude reserve, as well as their own impact in supporting higher prices if they continue buying several hundred thousand barrels per week.
More than 291.0 million barrels had been drained from the SPR between the start of 2021 and July 2023, so the small amount of re-filling that has been done is only canceling out less than 6% of those releases. The US did cancel the congressionally-mandated sale of 140 million barrels from the SPR that were meant to take place between 2024 – 2027, but the reality is that the reserve is comprised of 363.6 million barrels today, down -43% from 638.0 million at the end of 2020. Until the SPR is sufficiently re-filled, the US’s thinner cushion to deal with an energy emergency, like the beginning of Russia’s formal invasion of Ukraine, remains a risk factor for energy prices.
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