Oil prices fell despite US data pointing to tighter supply conditions. The move came as market focus turned to the possibility of a US-Iran agreement and reports of more crude tankers moving through the Strait of Hormuz.
EIA data showed record weekly declines in total US crude inventories, including Strategic Petroleum Reserve withdrawals. US crude oil and refined product exports remained above 13m b/d over the week.
Market Sentiment Versus Physical Data
The export level was above the average 11.1m b/d seen between the start of the year and the start of the war in Iran. Gasoline inventories fell to their lowest seasonal level since 2014.
Lower gasoline stocks were linked to support for gasoline refining margins as the summer driving season approaches. The article notes it was produced with the help of an AI tool and reviewed by an editor.
We are seeing a clear disconnect between market sentiment, which is focused on a potential US-Iran deal, and the actual physical market data. While hopes of new supply are pushing prices down for now, the numbers show US inventories are getting tighter. This divergence suggests the current price weakness may not be supported by underlying fundamentals.
The most compelling signal is in refined products, especially as we approach the summer driving season. Gasoline inventories are at their lowest seasonal point in over a decade, a situation made more critical by current Energy Information Administration data showing product supplied is already firming up above 9.1 million barrels per day. This fundamental tightness points towards well-supported prices for gasoline futures and stronger refining margins.
Exports And Strategic Reserves
High export levels continue to drain crude oil from US shores, keeping domestic supplies tight. This is happening at a time when the Strategic Petroleum Reserve is near 40-year lows, sitting at just over 360 million barrels. We believe this removes a key buffer the government has used in the past to control price spikes, leaving the market more exposed to supply shocks.
Given the headline risk from geopolitical talks, we see value in using options to position for a rebound driven by these strong fundamentals. Buying call options on crude oil or gasoline allows for participation in a potential rally while defining risk if the diplomatic news causes further selling. We remember how the significant SPR releases a few years ago only temporarily masked market tightness, with prices rebounding once the physical reality took hold.
