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Record US Oil Exports Drain Cushing Inventories as Global Supply Crunch Deepens

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Record US crude exports of 5.6 million barrels per day in May accelerated inventory declines at the key Cushing, Oklahoma, storage hub, Reuters reported Friday.

Refiners in Europe and Asia turned to US supplies after disruptions around the Strait of Hormuz removed more than 20 million b/d from global markets and cut over 1 billion barrels of supply since the conflict began, according to the report.

Oil inventories at Cushing have dropped sharply in recent months as buyers tapped the hub to replace lost Middle East supplies, highlighting its renewed importance in global crude markets, the report said.

US government data showed Cushing stockpiles fell to 22.4 million barrels on May 29 from about 26.4 million barrels on Feb. 27, while AlphaBBL estimated inventories declined by another 500,000 barrels between May 29 and June 2.

Phillips 66 believes inventories at Cushing could fall to operational minimum levels as stockpiles continue to decline, the report added, citing two sources.

Energy Aspects analyst Jeremy Irwin said operational issues could emerge if inventories fall below 20 million barrels, a threshold the hub has not breached since the US removed crude export restrictions in 2015.

Although Cushing can store about 78.4 million barrels, low inventory levels can make oil transfers and blending operations more difficult because some storage tanks cannot be fully drained.

Strong exports and continued withdrawals from commercial inventories and the Strategic Petroleum Reserve reduced total US crude stockpiles to 43.4 million barrels, down 63.9 million barrels, or 7.5%, during six consecutive weeks of declines.

Rapid production growth in Texas and other US regions has reduced Cushing's influence on global oil prices over the past two decades, although the hub remains an important part of the country's crude supply network, the report added.

Pipelines connected to Cushing move crude from major US shale basins and Canada to Midwest and Gulf Coast refineries, while also supplying export terminals along the Gulf Coast.

Midwest refiners could face the biggest impact if inventories fall to operational minimum levels because they lack access to seaborne crude imports, while lower stockpiles could also create quality issues as water and sediment accumulate at the bottom of storage tanks, the report said.

Chevron Chief Executive Mike Wirth said falling global inventories have reduced the market's ability to absorb supply disruptions, increasing the risk of tighter supplies and higher prices.

Wirth added, "There's more upward pressure that I would expect as we get into June and certainly into July."

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