Oil inventory at the biggest U.S. crude depot is depleting quickly. Crude oil was sold at more than $100 a barrel when the last time oil reserves were at critically low levels.
The storage facility at Cushing, Oklahoma, requires a minimum level of oil for optimum functionality. Traders believe that is around 20 million barrels. The stockpiles depleted for more than 4 million barrels and are expected to further decline owing to the increased demand for U.S. light sweet crude oil.
This is a striking change from last year when the pandemic caused low demand for crude oil. The traders had to store oil in sea tankers. The recovery from the last year’s slow demand has shocked the traders and observers worldwide. The energy crisis caused by a soaring demand this year has forced European and Asian buyers to look for cheaper oil. The market will turn even more bullish in the next few weeks because the stockpiles will likely fall further to the operational low.
Bob Yawger, director of the futures division at Mizuho Securities USA, said, “Crude oil could justifiably trade to the next level higher on the storage drought at Cushing alone. Forget about fuel switching, whether OPEC+ adds additional barrels, or dollar weakness: if Cushing continues to slide, it could get ugly quickly.”
The quick depletion of stockpiles indicates a further rise in global oil prices. High oil prices force consumers to buy costly fuels and drive the costs up for road travel, freight activity, and air travel. Oil prices directly impact the inflation rate, and the situation will worsen with time as many countries are still recovering from the pandemic-caused economic slump.
JPMorgan Chase & Co. analysts, including Natasha Kaneva, said in a report that the current rate of draw could force Cushing to go oil-less, leading to a calamitous situation.
According to a senior trader at one of the biggest U.S. crude exporters, demand for Cushing oil surged because it was the cheapest in the world. It resulted in the quick depletion of stockpiles. The person further added that the demand for U.S. oil is higher than ever, mentioning that South Korea will have bought most of the U.S. oil.
Asian buyers, mainly from India and Taiwan, are still in the market to Purchase U.S. crude oil.
The global energy crisis has made Cushing crude more attractive to worldwide buyers. It is light and sweet and has less sulfur than some other types of oil in the world.
Cushing is the delivery point U.S. crude futures and relies heavily on the forward oil curve, which is a key indicator of tightness in the market. The prompt spread, the price difference between oil contracts for immediate delivery compared with a month later, is at the highest level in more than three years. When more immediate prices are higher than later ones, traders call it backwardation and is considered as a bullish indicator.
So far, there is no sign of a slowdown. The inventories at Cushing fell by a further 1.9 million barrels between Fridays and Tuesday.