The US has maintained an average of 65 days of crude oil inventories, including the Strategic Petroleum Reserve, since 1982. However, Bank of America's latest estimates revealed that the US now has only 41 days of oil inventory left, the lowest in half a century.
According to the US Energy Information Administration, combined commercial crude and Strategic Petroleum Reserve holdings stood at 722.2 million barrels for the week ended 14th August, which is a decline of 101.9 million barrels, or 12.4% from a year earlier.
While commercial inventories stood at 428.8 million barrels, up 8.1 million barrels from a year earlier, the Strategic Petroleum Reserve contracted by 110 million barrels to only 293.4 million barrels.
Note that recovering commercial stocks can support immediate refinery operations, but rapid reserve depletion lowers Washington's discretionary capacity to absorb another prolonged international supply disruption.
The current inventory situation could be attributed to the Middle East conflict, which severely limited traffic through the Strait of Hormuz. Flows through the waterway reportedly collapsed from around 20 million barrels daily before the conflict to averages as low as 2.7 million.
The US consequently leveraged strategic stocks as a shock absorber, supporting domestic refiners while supplying global markets exposed to disrupted Middle East shipping routes. In March, the Trump administration authorised releases of up to 172 million barrels as America's contribution to a coordinated 400-million-barrel international intervention, predominantly structured through repayable exchanges.
Although domestic US production of 13.83 million barrels daily offers some protection, production alone cannot fully replace imports, support elevated exports, and satisfy refineries operating near maximum capacity.
US oil and gas prices are likely to continue rising amid US President Donald Trump's 'Economic D-Day' threat on Iran and any country that does any trade or offers any lifeline to Iran. Meanwhile, Iran has also vowed to retaliate against the expanded US sanctions campaign.
'Iran still retains the ability to respond by disrupting shipping, which continues to keep a residual premium in the oil price,' said Tim Waterer, chief market analyst at KCM. Moreover, only two tankers reportedly passed through the Strait on Monday, the lowest daily number of commodity vessels since early May. As the US and Iran find ways to hamper each other's geopolitical plans, Americans at the pump could be paying for it.
However, there could be a bigger crisis for Americans. According to the Associated Press, tens of thousands of people in northwest Indiana have remained without power since storms knocked down power lines across the region last week.
The Northern Indiana Public Service Co. reportedly said over 75,000 customers were in the dark last week, including 21,000 people in the city of Gary, Indiana, where people have sought relief from food pantries or gone to community centres for assistance.
More worryingly, the US power grid is reportedly at risk of a major blackout that could last up to 18 months.
Jon Wellinghoff, former chair of the Federal Energy Regulatory Commission, told The New York Times Magazine that America's ageing infrastructure is outdated and potentially vulnerable to a coordinated attack. He first raised the alarm in 2013 after gunmen damaged 17 transformers at an electrical substation near San Jose, California. It took Pacific Gas and Electric Company nearly a month to bring the substation back online back then.
Wellinghoff said the FERC did an analysis that determined the US power grid could be severely disrupted if similar incidents targeted the 10 most important substations in the country's three sections: Western, Eastern, and Texas Interconnections.
Over 75% of distribution transformers, be it on street corners or telephone poles, are older than their 50-year life expectancy. Larger power transformers, which have shorter lifespans, were an average of 38 to 40 years old in 2014.
