US crude oil and refined product inventories have tumbled to their lowest level since 2004, according to government data released Wednesday, as the ongoing war with Iran continues to strain domestic supplies and force American exports to fill the void left by a closed Strait of Hormuz.
Total stockpiles dropped by 10.6 million barrels last week to 1.57 billion barrels, the lowest in two decades, the Energy Information Administration reported. The sharp drawdown has prompted fresh warnings from industry analysts that oil prices are poised for another sharp rise within weeks. US crude rose 2.6% in afternoon trading Wednesday to $96.17 per barrel.
Bob McNally, president of Rapidan Energy Group and a former White House advisor, said prices could hit $200 a barrel this summer unless the Strait of Hormuz—the vital Gulf waterway through which roughly one-fifth of the world’s oil flowed before the war—is reopened. Iran has imposed controls on the strait, citing security coordination measures.
“This starts to increase the risk of spillover into other sectors, the economy, and the financial system,” McNally warned. “It’s exposing vulnerabilities in the economy and the financial system in general.”
According to the Financial Times, which first detailed the inventory crunch, the decline since the start of the war has eroded gains from the US shale revolution that had made America the world’s largest oil producer and a major exporter.
‘A critical situation’
Last week’s 10.6 million barrel drop was driven by a 16 million barrel decline in crude inventories held by companies and governments, coupled with surging exports to Asia and Europe as traders rushed to compensate for lost Middle Eastern supplies. US crude shipments jumped from 4.4 million to 5.8 million barrels per day last week—exceeding the output of many OPEC nations—and have continued a pattern of sharp increases since the war began.
“The US is acting as a last resort for global oil markets, stabilizing them and providing a buffer to compensate for supply shortages in the Middle East,” said Edward Hayden-Privette, an analyst at The Officials, a subsidiary of Onyx Capital Group.
But he cautioned that America’s capacity to absorb the global oil shock is limited, pointing to increased withdrawals from the Strategic Petroleum Reserve (SPR). The Trump administration has released roughly 50 million barrels from the SPR and authorized another 172 million barrels to curb rapid price rises.
“As this reserve dwindles, it becomes a source of pressure rather than reassurance,” Hayden-Privette added.
Oil prices had been gradually declining in recent weeks following President Trump’s announcement that he was close to a peace agreement with Iran, but recent escalations have dampened those hopes. Analysts warn that continued closure of the Strait of Hormuz will push prices up again, given low US and global inventories.
Political heat builds on Trump
Renewed crude price spikes are likely to drive up fuel prices during America’s peak summer driving season, intensifying political pressure on the president ahead of November’s midterm elections. American voters have expressed anger over the administration’s handling of the economy and inflation, according to a recent Financial Times poll.
Gasoline prices averaged $4.44 per gallon last week, Energy Information Administration data shows—a modest decrease in recent weeks but still roughly 50% higher than before the war. Trump has said prices will drop sharply once the conflict ends.
Analysts added that global traders competing for oil will continue seeking US supplies to fill war-driven gaps, further straining domestic inventories. “This is a critical situation,” McNally said. “The buffer is nearly gone.”
Source: The Financial Time