Record U.S. Crude Exports Drains Inventories

• Exports of U.S. crude oil and petroleum products reached record heights.

• Tailwinds included ongoing global tensions and a favorable gap between WTI and Brent spot prices.

• Stagnant production and falling inventories will limit the uptrend.

Exports of U.S. crude oil and petroleum products reached record heights (4% MoM/ 21%YoY/ 28% YoY3). Powering demand were those seeking alternatives to Russian crude oil amid ongoing global tensions, either in preparation for embargoes or fearing the impact of potential secondary sanctions.

Exports were also boosted by the widening gap between spot prices for West Texas Intermediate (WTI) and Brent, crude oil benchmarks for the U.S. and Europe, respectively. While both declined, Brent remained at a premium in comparison, allowing U.S. crude oil to be more competitive on international markets.

Notably, U.S. crude oil production cannot sustain this export surge. Production stagnated (0% MoM/ 6% YoY/ -2% YoY3), and the number of oil rigs followed a similar trend (0% MoM/ 50% YoY/ -21% YoY3). As such, we do not expect any sizeable hikes in output in the near term. Dormant domestic demand (0% MoM/ -6% YoY/ 8% YoY3), equivalent to double export levels, provides producers with little incentive to expand production.

As production lagged, inventories were another source to fulfill growing foreign demand (-3% MoM/ -16% YoY/-18% YoY3). Hovering at the lower range of the five-year average, further draws could expose the domestic market to vulnerabilities and lift already elevated prices.