The American Petroleum Institute (API) estimated that U.S. crude oil inventories rose by 9.072 million barrels in the week ending August 7, defying analyst expectations for a 500,000-barrel draw. The prior week had seen a build of 2.69 million barrels. The API's weekly survey is closely watched by oil traders as a preliminary read on supply conditions, though its figures can diverge from the official government data published by the U.S. Energy Information Administration (EIA) the following day.

The larger-than-expected increase was driven in part by higher crude imports relative to exports during the reporting week.

Inventory Trends and SPR Drawdowns

Commercial crude oil inventories, excluding the Strategic Petroleum Reserve (SPR), have declined by just over 49 million barrels over the past seventeen weeks. For the year, however, U.S. crude inventories are up 1.88 million barrels, according to API data, with the net figure kept in check by ongoing draws from the SPR.

For the week ending August 7, an additional 6.1 million barrels were withdrawn from the SPR, bringing the total to 298.7 million barrels — approximately 433 million barrels below maximum capacity. The SPR held roughly 727 million barrels at its 2010 peak, meaning the reserve has been drawn down by well over half since then. The generally accepted operational minimum for the SPR is between 250 and 300 million barrels; below that threshold, the reserve may face difficulties pumping and processing oil efficiently.

U.S. Production

U.S. crude production for the week ending July 31 rose to 13.804 million barrels per day (bpd), up from 13.796 million bpd the previous week and an increase of 600,000 bpd compared with a year earlier. Output at these levels reinforces the United States' position as the world's largest crude oil producer, ahead of both Saudi Arabia and Russia.

Oil Prices Rally on Hormuz Tensions

At 3:57 p.m. ET on Tuesday, Brent crude was trading higher on the day at $89.08 (+1.55%), representing a gain of nearly $10 per barrel week over week, as Iran held firm on its conditions for allowing unobstructed traffic through the Strait of Hormuz. The strait is one of the world's most critical energy chokepoints, with roughly a fifth of global daily oil consumption transiting it.

West Texas Intermediate (WTI) was also trading up, gaining $1.18 per barrel (+1.42%) to reach $84.22 — more than $8 per barrel higher than the same time the previous week.

Gasoline, Distillates, and Cushing

Gasoline inventories fell by 1.531 million barrels in the week ending August 7, after increasing by 156,000 barrels the prior week. According to the latest EIA data, gasoline inventories were already 7% below the five-year average for this time of year heading into the previous reporting period.

Distillate inventories declined by 596,000 barrels, following a draw of 1.2 million barrels the week prior. Distillate stocks were 12% below the five-year average heading into this reporting period, per the latest EIA data.

Cushing inventories — the stock held at the delivery hub for the WTI crude futures contract — rose by 1.571 million barrels over the reporting period, after increasing by 2.358 million barrels the previous week.

By Julianne Geiger for Oilprice.com