US crude oil stocks have slipped to their lowest level in 2023 and may sink further, according to analysts, as record demand, producer supply trims, weaker futures, and growing storage costs all indicate increasing drawdowns.
A tight crude market is set to extend into next year and add upward pressure on the worldwide cost of oils, according to them. In a bullish sign, US inventories slid 10.6 million barrels the previous week, reaching the lowest level since last year’s 420.65 million barrels in December.
“We are already around 2022’s close and I don’t think we are getting a build in the second half of the year,” stated Al Salazar, a senior vice president at energy technology company Enverus. “$100 a barrel (for Brent crude) is definitely within striking range.”
Brent crude futures were trading at $88.08 per barrel on Friday, while US crude futures were trading at $85.16 per barrel.
Global demand is expected to reach a record high in 2023 on robust air travel, power generation requirements, and booming Chinese petrochemical activity, the International Energy Agency predicted in August. Demand could rise by 2.2 million barrels per day (bpd) to 102.2 million bpd.
Oil supply will not match the growth in demand, according to the IEA, adding that it expects output to surge by 1.5 million bpd. Supply has dipped after Saudi Arabia voluntarily slashed output in recent months and could potentially outweigh rises in US shale and in Iran and Venezuela.
Inventory Withdrawals
In total, US oil production could average 12.8 million bpd this year, but analysts are skeptical that shale profits can be sustained without a sharp spike in drilling activity. Active US oil rigs slid to their lowest level this month since February 2022.
Near-term US oil prices are higher than futures, which has further motivated withdrawals from inventory. US crude for delivery in October recently traded nearly $6 higher than for delivery a year out.
Even when six-month futures in July grew above those for a short while for October delivery, US stocks dropped as central bankers raised interest rates, lifting prices to purchase and store oil.
“It’s going to be pretty difficult to incentivize that storage,” said Christopher Haines, an analyst at Energy Aspects.
The cost of crude for future deliveries is required to trade at least 50 cents above October costs before it is profitable to maintain crude, according to the chief executive of terminal storage clearinghouse, The Tank Tiger, Ernie Barsamian.
That is akin to the calculations of 10–20 cents when interest rates approached 1%.
“We are likely moving to a new normal of lower inventory forward cover,” analysts at Energy Aspects noted.