- There was a record decrease of 17 million barrels in US crude inventories.
- A major rating agency downgraded the US government’s top credit rating.
- The Biden administration withdrew its offer to purchase 6 million barrels of oil for the SPR.
On Wednesday, oil prices declined by 2%, despite a significant drop in US crude stocks.
US crude oil inventories (Source: DOE)
The Energy Information Administration reported a record decrease of 17 million barrels in US crude inventories. This resulted from increased refinery operations and robust crude exports. However, a major ratings agency’s downgrading of the US government’s top credit rating led traders to derisk, causing oil prices to fall.
The EIA also reported a 1.3 million barrel decrease in the total product supplied, indicating a decline in demand, particularly for gasoline, which seemed to have peaked following higher pump prices.
Crude oil inventories have also started declining in other regions as demand exceeds supply. Saudi Arabia, the leader of OPEC, has implemented deep production cuts, adding to supply constraints.
Contributing to price declines, an Energy Department spokesperson announced that the Biden administration withdrew its offer to purchase 6 million barrels of oil for the Strategic Petroleum Reserve (SPR). This decision comes as oil prices are projected to continue rising following an output cut by Saudi Arabia.
The US had initiated the request to buy sour crude oil for the SPR on July 7. Last year, in response to the Ukraine war, the administration released a record 180 million barrels from the reserve to stabilize prices. The Energy Department recently bought back 6.3 million barrels to replenish the reserve.
Concerns have emerged regarding potential slowdowns in oil buying from China, the world’s largest oil importer, as prices continue to rise. Weak PMI data further suggests that fuel demand may be weaker than anticipated.
In an upcoming producers ‘ meeting, analysts anticipate that Saudi Arabia will extend its voluntary oil output cut of 1 million barrels per day for another month, including September. In June, OPEC+ reached a comprehensive agreement to restrict oil supply until 2024.
As part of this deal, Saudi Arabia committed to an additional voluntary production cut for the month of July. On July 3, Saudi Arabia announced its decision to extend this cut for an additional month, covering the month of August. The country also indicated that the cut might be prolonged beyond August if necessary.