U.S. Crude Oil Storage Levels Are Falling Toward This Critical Level. Here’s What Investors Need to Know
Written by Reuben Gregg Brewer for The Motley Fool -> The geopolitical conflict in the Middle East has left the world short of oil. The United States is exporting oil at a rapid pace to help offset the Middle East shortfall. The United States can't keep up this pace of oil exp
The geopolitical conflict in the Middle East has left the world short of oil.
The United States is exporting oil at a rapid pace to help offset the Middle East shortfall.
The United States can't keep up this pace of oil exporting for long.
The CEOs of Chevron (NYSE:CVX) and ExxonMobil (NYSE:XOM) have both warned that oil prices aren't fully reflecting the on-the-ground situation in the oil market. The latest update on that comes from the United States, where U.S. oil reserves are getting dangerously low, with a warning from refiner Phillips 66 (NYSE:PSX) about the issue. What's going on and what should investors do now?
Oil is global, so events in the Middle East affect the rest of the world. Oil exports from the U.S. market rose as flows from the Middle East were constrained, with oil users seeking supplies from wherever they were available. U.S. oil production isn't directly affected by the war, and the country is one of the world's largest oil producers, so it was a logical place to look. Companies like Devon Energy (NYSE:DVN) and Diamondback Energy (NASDAQ:FANG) are likely to be net beneficiaries from high oil prices and increasing demand for U.S. oil.
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However, the real risk in the drawdown on U.S. stockpiles is that it can only go on for so long before the high level of exports will likely need to be curtailed. At the end of May, inventory in Cushing, a key U.S. energy hub, stood at 22.4 million barrels, down four million barrels from February. Industry watchers warn that hitting 20 million barrels could pose operational challenges for energy companies.
So U.S. oil is just a temporary solution to the much bigger problem posed by the Middle East conflict. There simply isn't enough oil to go around right now, which is basically what Chevron and Exxon have been saying. Oil is a commodity, so prices rise when supply is constrained and demand is high.
