Oil prices soar to 2023 highs amid low inventories at key US storage hub

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Oil prices have surged to their highest levels since 2023, as the supply of crude oil at the Cushing, Oklahoma storage hub, the delivery point for the US benchmark, has dropped to near-critical levels. The decline in stockpiles has been driven by strong demand, reduced output from major producers, and pipeline disruptions.

Cushing inventories fall to lowest seasonal level in five years

According to the latest data from the Energy Information Administration (EIA), crude oil inventories at Cushing fell by 1.5 million barrels to 22.9 million barrels in the week ending September 22, 2023. This is the lowest level for this time of the year since 2018, and close to the minimum operating level of 20-22 million barrels, below which the delivery of crude oil becomes more difficult.

The drop in Cushing inventories has been attributed to several factors, including robust demand from refineries, lower imports from Canada due to pipeline outages, and reduced exports from Saudi Arabia and Russia, which have extended their voluntary production cuts. The EIA also reported that US crude oil production fell by 100,000 barrels per day to 11.1 million barrels per day in the same week, as some offshore platforms were shut down due to Hurricane Nicholas.

Oil futures hit 2023 high on supply tightness

The dwindling supply of crude oil at Cushing has boosted the price of West Texas Intermediate (WTI) futures, the US benchmark, which rose by more than 3% to trade above $93 per barrel on Wednesday, September 27, 2023. This is the highest level since November 2023, when WTI briefly touched $95 per barrel.

Oil prices soar to 2023 highs amid low

The spread between November and December WTI futures, which reflects the market’s expectation of future supply and demand, also widened to more than $1.30 per barrel, the largest since November 2023. This indicates that traders are willing to pay a premium for immediate delivery of crude oil, due to the scarcity of physical barrels at Cushing.

Brent futures, the international benchmark, also climbed by more than 2% to trade above $96 per barrel on Wednesday, following the rise in WTI. Brent has also reached its highest level since 2023, as the global oil market faces a supply squeeze amid strong demand recovery from the COVID-19 pandemic.

Implications of higher oil prices for the economy

The surge in oil prices has raised concerns about the impact of higher energy costs on the global economy, which is still recovering from the effects of the pandemic. Higher oil prices could increase inflation, reduce consumer spending, and hurt the profitability of businesses that rely on oil as an input.

However, some analysts have argued that the current oil price rally is manageable and temporary, as the supply-demand imbalance is likely to ease in the coming months. They expect that the OPEC+ group of oil-producing countries, which includes Saudi Arabia and Russia, will increase their output gradually, as they have agreed to do in July 2023. They also anticipate that the US shale industry will ramp up its production in response to higher prices, and that the demand growth will moderate as the winter season approaches.

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