The stockpiles of crude oil at the Cushing storage hub in Oklahoma have reached their lowest levels in 14 months, which has raised concerns about the quality of the remaining oil and the potential to fall below the minimum operating levels. This trend, combined with supply cuts from Saudi Arabia and Russia, has led to a tight market and could further increase upward pressure on oil prices. The front-month Nymex crude for November delivery settled at $90.39 per barrel, while Brent crude closed at $93.96 per barrel. Analysts expect another drawdown of as much as 1 million barrels in the week ending September 22.
The decline in oil inventory levels at Cushing can be attributed to strong refining demand, rising crude exports, and future prices that have been weaker than spot prices. However, this situation poses challenges, as tank storage below 20 million barrels, or 10-20% of Cushing’s capacity, is considered close to operational lows. It becomes difficult to remove oil at such low levels, among other operational problems. While some analysts believe that seasonal maintenance at refineries may help build crude stocks to some extent, others warn that refiners are likely to exit maintenance quickly and operate at full capacity to meet high fuel demand.
In another development, the U.S. Interior Department has decided to postpone a sale of Gulf of Mexico drilling rights, originally scheduled for September 27, to no later than November 8. This decision comes after an appeals court ruling that ordered the Biden administration to expand the sale. The delay in the auction adds to the challenges faced by the oil industry and affects the overall supply scenario.