Crude oil tanks at the Cushing, Oklahoma, storage hub are more depleted than in three years, with oil futures indicating they will remain lower for months. U.S. oil demand among refiners that make gasoline and diesel has surged as the economy recovers from a pandemic. That surge in demand around the world means other countries have looked to the U.S. for barrels of crude, which has also increased withdrawals from Cushing.

Analysts expect the inventory draw to continue in the near term, which could further boost U.S. crude prices, which have risen about 25% in the past two months. The discount in U.S. crude oil futures to the international Brent benchmark should remain small. “Storage in Cushing alone has the potential to really drive the market,” said Bob Yawger, director of energy futures at Mizuho. Cushing stocks have fallen to 31.2 million barrels, the lowest since October 2018, the Energy Information Administration said last week, or about half of what they were at this time a year ago.

Inventories have fallen due to rising U.S. demand, which has prompted domestic refiners to store crude at home to provide fuels such as gasoline and distillates to U.S. consumers, said Reid I’Anson, senior commodities analyst at Kpler. Additionally, U.S. production has been slow to recover from the decline seen in 2020. At the end of 2019, the country was pumping about 13 million barrels of oil per day (bpd), but in recent weeks it has been pumping less than 11.5 million bpd.

At the same time, refinery-supplied products—a proxy for demand—are only about 1% below their pre-academy peak. As a result, the spread between U.S. crude and the international benchmark Brent has collapsed. The spread between U.S. crude delivered to Cushing and Brent narrowed to about $1.09 a barrel this week, from $4.47 earlier this month, the widest spread since May 2020.

In another sign of strong near-term demand for U.S. crude, the premium for U.S. crude delivered this December versus December 2022 hit a high this week of $12.48 a barrel, the most since at least 2014, according to Refinitiv Eikon data. In the next three months, Rystad Energy expects refinery runs in the United States to increase by 500,000 to 600,000 barrels per day.

This would be on top of the 300,000-400,000 bpd production increase, and keep the WTI/Brent spread narrow. “Only if OPEC (Organization of the Petroleum Exporting Countries) intervenes with more crude supplies or if COVID comes back, curbing demand, will this high volatility go away,” said Mukesh Sahdev, senior vice president and head of downstream at Rystad Energy. That’s the explanation for the news story “US Oil Demand Surges, Oklahoma Tanks Drain” from GICTrade.

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