Today’s headline news chronicles our triumphant, record-breaking petroleum exports: 6.4 million barrels a day. The highest weekly figure ever recorded. On the surface, it appears America may just make up in exports what the closure of the Straits of Hormuz prevents.
On the surface.
The reality of our domestic petroleum situation is more dire. The same week America exported record amounts of crude it quietly drew down its strategic reserve to the tune of 7.1 million barrels a day same week ending April 24. This represents the largest drawdown since 2022.
Let’s do some simmple arithmetic: drawdown strategic reserves by 7.1 mln and export 6.4 mln. Subtract and you get a net loss of 700,000 barrels a week. That’s the burn rate of crude oil. Not slack. Vanishing.
Adding insult to injury, Morgan Stanley reports that gasoline inventories are at their lowest level since well, ever. Yes, ever. By August gasoline reserves will freefall to 198 million barrels.
In reality, America is facing an unsustainable crude oil burn rate coupled with a completely unsustainable draw down in gasoline reserves. These drawdowns are occurring in the face of perilously high petroleum prices, including gasoline.
But domestic petroleum production, and refining capacity will make up the difference!
What part of unsustainable did you not understand?
For example, the oil refinery on Corpus Christi Bay here in South Texas is effectively off-line because it has no water source. Lake Corpus Christi is dry. No water, no refinery, no gasoline.
To make matters worse, domestic crude production is trending flat to down, even as WTI spot prices are in the $102 range.
Permian Basin rig counts, a leading indicator of what future crude production will look like, are down 15.33% YoY. Oklahoma rig counts are down from 55 last April to 43 today. That’s a -21% decline YoY. New Mexico dropped 3 rigs and Wyoming dumped 1. What about Eagle Ford shale oil you ask? At $102 a barrel shale has to be profitable. True, but there hasn’t been a drilling permit issued in the Eagle Ford basin in three years. None have been filed with the state since the crisis with Iran began. There’s a reason for this. WTI spot prices are $102 a barrel, as I previously noted. Those are spot prices for oil deliverable right this minute. If you go 12 months out on the contract curve to May 2027, the price of WTI Falls to $73 a barrel. At that price shale oil isn’t in the sweet spot.
Moreover, what the prices in May 2027 are telling policy makers, factory owners, grocery store managers, freight shippers and the like in bright red flashing lights are that a deflationary spiral is a very real possibility.
Here’s where the rubber hits the road: the petroleum and gasoline burn rate will force the Fed’s hand and compel a rate increase to prevent a massive inflationary spike.
But what is the Fed to do six months to a year from now when the looming credit crisis, and housing collapse reach critical mass and unravel, popping the AI bubble the blowoff?
We’re literally exporting our seed corn.
You can’t reap what you don’t sow.
Feral Finster
“We’re literally exporting our seed corn.”
Even taking that as granted, YBGIBG.
spud
so that’s why oil has not really spiked yet. as keen has said, the 1990’s we saw the democrats get rid of production, and substitute paper manipulation as a basis for our economy. we are facing the inevitable end to that insanity.
but i am also thinking there is more, shorts and futures might be manipulated in the oil market to.
DanFmTo
I had understood that you can only physically draw about 4M bpd from the SPR, so how can it be using 7M bpd of it? Some kind of on-paper promise for future oil?
Also: The global shortfall from the strait being shut is 10M+ bpd, and if Iran goes through with their threat to shut off exports from UAE’s Gulf of Oman port at the other end of their 1.5M bpd pipeline, that’s another chunk missing.
So no, the US selling unsustainably won’t close the gap in global terms either.
Purple Library Guy
“the petroleum and gasoline burn rate will force the Fed’s hand and compel a rate increase to prevent a massive inflationary spike.”
This is technically true, but the silly thing is that the inflation caused by this kind of event is not about interest rates, and interest rates will mostly not work to prevent it. The Fed will valiantly pretend otherwise and nuke the economy in order to save it, but it’s nonsense.
The thing about inflation and interest rates is based on a particular cause of inflation, a cause that frankly hasn’t been active in decades. The idea is that if the economy is growing rapidly and employment is high, unemployment low, a “tight” labour market, then workers will have more bargaining power and successfully demand increased wages, and then firms will pass on this expense in the form of charging higher prices for their goods and services. Then, if interest rates are increased, this will “cool” the economy, causing firms to make more conservative employment plans–hire fewer, fire more–and the slack in the labour market will cause workers to lose bargaining power and be unable to demand higher wages, and this in turn will result in firms no longer increasing their prices, and inflation will go away.
Note that even at best, if this DOES happen and does work, it does so by creating unemployment and cutting wages and generally making the population less prosperous. So there should be a good deal more reluctance to do this than there actually is.
But anyway, when was the last time this happened? It doesn’t happen. The neoliberals killed unions, they did the free trade thing which allowed credible threats to relocate abroad rather than pay workers better, they did all kinds of shit to make sure workers never got bargaining power no matter what. When inflation happens it is for entirely different reasons, mostly situations where stuff is in short supply and the price gets bid up, and lately also because firms have too much monopoly power and just jack up prices because they can. Interest rates can theoretically have an impact on this, but only if they are pushed so hard that the crash created destroys huge amounts of demand, so that the “short supply” is enough for the remaining buyers. That basically requires triggering a Great Depression just to deal with fucking 10% inflation, it’s insane. Short of that, interest rates will have little impact on this kind of inflation, they’ll just hurt the economy to no purpose.
And yet, central banks will jack up those rates anyway, because the received wisdom of Serious People (who are fucking always wrong, but they’re wrong AUTHORITATIVELY so it’s OK) says you jack up interest rates to deal with inflation. And inflation is always more important than actual people’s actual well being.
Carborundum
Yet Cushing is up about 4 Mbbl from February and total stocks ex-SPR are up by a like fraction as well. (SPR was previously showing a modestly paced build from the big early 20s draw down.) I would guess from all those crude carriers that suddenly started re-directing towards the US back in late Feb-March?
I’m interested where the stat that there was a 7.5 Mbd draw down of the SPR came from – that doesn’t appear to be reflected in the EIA statistics, which show 6 Mbbl total decline in week ending stocks.
Mark Level
Thank you, Sean. I knew Richard Medhurst was dead wrong that the J in DJT stood for “Jenius.” Grabbing up all the world’s oil, while spot-crashing the Markets over the weekend, then later artificially keeping oil prices low.
And there’s big news, China just called Mafia Don and crew’s bluff, the tightened sanctions on its 4 largest oil refineries for buying from Iran; it calls this out as “extraterretorial” intervention with its rights, and states it will conform with NO sanctions, nor may any Chinese-based corporations or individuals do so. They had put this law on the books in 2021, finally pulled the trigger.
US will be isolated, China is the largest trading party in the world, if countries have to choose between the 2, only the stupidest ones will chain themselves to Trump’s Heads I Win, Tails You Lose looting grift.
You beat me to saying “eating the seed corn.” He’s demolishing the Empire, not reviving it, treason from within.
Mark Level
MoA details what I mentioned yesterday here– https://www.moonofalabama.org/2026/05/war-on-iran-project-freedom-a-one-off-stunt-tightening-uae-blockade-china-counters-u-s-sanctions.html
Jimmy Dore was the 1st I know of to cover this, here’s the gist today from MoA:
“In a statement on Saturday, China’s Ministry of Commerce said the sanctions “improperly” restrict business between Chinese enterprises and third countries “in violation of international law and the basic norms governing international relations”.
“The Commerce Ministry said it had issued a “prohibition order” stipulating that the sanctions “shall not be recognized, enforced, or complied with,” calling the order a move to “safeguard national sovereignty, security, and development interests”.
“The Chinese government has consistently opposed unilateral sanctions that lack UN authorisation and basis in international law,” the ministry added.In a statement on Saturday, China’s Ministry of Commerce said the sanctions “improperly” restrict business between Chinese enterprises and third countries “in violation of international law and the basic norms governing international relations”.
The Commerce Ministry said it had issued a “prohibition order” stipulating that the sanctions “shall not be recognized, enforced, or complied with,” calling the order a move to “safeguard national sovereignty, security, and development interests”.
“The Chinese government has consistently opposed unilateral sanctions that lack UN authorisation (sic) and basis in international law, the ministry added.”
They added that Trump’s 2x delayed visit to Xi in China is 10 days from now!! Anyone want to bet that it will never happen, Trump was humiliated by being berated once by Xi in China, he’ll TACO and not show his fat face, lest he lose face with the Chinese while the whole world is watching.
Excellent comment from Purple Library Guy. Yes, the federal Masters of the Universe will only deploy Austerity on ‘Muricans, 24/7 every day of the year that ends in “y”.
Trump’s flailing and failing, his shambolic 2nd term is mostly over, though he will do much more damage to this country and the world if he serves out all 4 years. (Not that he serves, he only steals, burns things down.) A walking wrecking ball.
spud
Purple Library Guy:
excellent over view. yes the three stooges of the 1970’s, jimmy carter, alfred kahn and paul volker, all of that combined genius gave us reagan.
then clinton, obama gave us trump, then biden gave us trump II. and the federal reserve just keeps chugging along keeping neo-classical economics, and neo-liberalism great again.
keen is right, only lunatics would raise rates now.