Insights 
VT 
US crude oil inventories dropped sharply by 11.5 million barrels last week, marking the largest weekly decrease in nearly a year. This was driven by a drop in net imports of 1.8 million barrels per day, due to falling imports and rising exports.
Exports rose despite the narrowing price difference between WTI and Brent, with the gap reducing to just $2.5 per barrel at the beginning of the week, the lowest this year. This suggests exports may not maintain their current level, hinting at a possible reversal of inventory reduction.
Tight Supply Situation
Currently, US crude oil inventories are 10% below the 5-year average, indicating a tight supply situation. In Cushing, the deviation reaches 40%, reflecting that WTI prices are aligning more closely with Brent.
That sharp drop in US crude inventories—11.5 million barrels, nearly unheard of lately—isn’t only about increased demand or seasonal swings. The more immediate driver seems to be the plunge in net imports, which fell by 1.8 million barrels a day. On one side, fewer barrels are arriving. On the other, more are leaving the country. That combination doesn’t typically last too long, especially as price differentials start to narrow.
Exports ticking up even with only $2.5 per barrel separating WTI from Brent at the start of the week was surprising. At that spread, there’s barely much incentive for overseas buyers to favour WTI over Brent. It’s the thinnest margin of the year so far, effectively erasing the usual arbitrage that supports exports. That tells us the current export pace might not be sustainable. If the gap stays this narrow—or narrows more—traders with long positions banking on lower US inventories could be caught flat-footed if exports contract.
Regional Pricing Dynamics
The inventory deficit is no longer marginal. Stocks are now sitting about 10% beneath the five-year average. That puts pressure on local supply, raising the floor under US crude prices—especially as we move through the higher-demand summer period. The tighter situation in Cushing is even more stark. Inventory levels there have dropped to a point that’s about 40% below the five-year norm, pushing WTI to trade closer to Brent than it has for some time. That sort of shift doesn’t happen unless supply at the delivery hub starts to influence price more than global flows. With Cushing this depleted, any supply hiccup—pipeline disruption, refinery shift, or Gulf weather disturbance—could rattle futures.
What this means in the shorter term is that we might see more emphasis on regional spreads and less reliance on international benchmarks when gauging domestic positioning. WTI’s convergence with Brent reflects not just lower availability but also traders adjusting their bias to handle increased pricing pressure from within the US rather than looking outward.
From what we’re seeing, it becomes essential to approach positioning with a clear eye on forward curves, export volumes, and any change at coastal terminals that could confirm whether the export pressure eases. If it does, the inventory drop could flatten out—or even reverse—restoring net imports to more balanced levels. Until then, pricing risk seems tilted toward stay-low inventories and continued short-term upward price pressure.
Short call spreads might begin to feel more exposed, particularly if there’s continued draw in the lower Midwest stocks. And anything levered on the assumption of a growing export margin could underperform as the Brent-WTI spread remains tight. We’ll need to stay alert to weekly Energy Information Administration reports, not just for the headline crude change, but for regional stock shifts and total exports. If flows through the Gulf Coast start to ease, current long positioning will require protection. Otherwise, too much exposure without hedging could rapidly unwind.
