Oil has taken off like a rocket as Israel strikes Iranian targets in Syria in response to rocket fire overnight. Israel says it targeted Iran's military infrastructure in Syria, in response to an Iranian rocket attack on the occupied Golan Heights. This comes as Iran lashes out in every direction in response to the U.S. backing out of the Iranian nuclear accord. This backdrop of increasingly high tensions in the Middle East are even more supportive as U.S. oil inventory shows big drops in supply against robust and near record-breaking demand.
The Energy Information Administration (EIA) reported that U.S. crude supply fell by 2.197 million barrels last week. The drop in crude supply came as we saw a big drop in oil imports that fell by 1.22 million barrels a day last week, even as U.S. refiners slowed for more seasonal maintenance. The EIA reported that crude oil refineries operated at 90.4% of capacity running only 16.5 million barrels of oil per day.
That hurt gasoline production that fell to a still respectable 9.9 million barrels a day as gas demand was at a seasonal 9.97 million barrels of gasoline per day. Gasoline will continue to rise in the coming weeks, so refiners are going to come out of maintenance to keep up.
Yet they can't focus just on gasoline. Distillates like diesel and jet fuel on hand are at historically low levels. The EIA reported that distillate fuel inventories fell by 3.8 million barrels last week putting supply in the lower half of the average range for this time of year.
U.S. crude oil exports fell by 271,000 barrels a day last week, and U.S. production rose by 84,000 barrels a day to 10.7 million barrels. U.S. Crude exports averaged 1.88 million barrels a day last week and have a daily average for the year of 1.64 million barrels a day, a 118% increase over the year-ago export total.
So, the U.S. market is tight and the tension surrounding Iran and Israel will add to the oil risk premium. The larger issues of underinvestment in recent years means there is not a lot of spare production capacity left around the globe.
