Data from the US Energy Information Administration (EIA) released on Wednesday indicates a significant drawdown in US oil and petroleum product stocks, which have now fallen to their lowest level since 2004. The latest EIA report shows that in the week ending May 29, crude inventories dropped by 8 million barrels to 433.7 million barrels, a decline that is 3% below the five-year average and more than double the reduction forecast by analysts.

US crude production held steady at 13.7 million barrels per day last week, while crude exports surged from 4.4 million to 5.9 million barrels per day, continuing a significant uptrend in shipments since the outbreak of the Iran conflict. Crude oil held in the Strategic Petroleum Reserve (SPR) fell sharply by 8 million barrels to 357.1 million barrels, marking the lowest point since January 2024. This drawdown is part of the approved release of 172 million barrels from the SPR intended to curb soaring crude prices.

Crude stocks at the Cushing, Oklahoma delivery hub decreased by 583,000 barrels to 22.4 million barrels. Overall, since the US-Israel strikes on Iran began on February 28, crude inventories have seen a cumulative reduction of 63.9 million barrels.

Analysts have highlighted that inventories are now at critically low levels and have issued warnings of a potential substantial increase in oil prices. Matt Smith, Lead Oil Analyst at commodity research firm Kpler, noted in a report, "SPR stocks continue to be drawn, down another 8 million barrels last week. Despite this massive transfer of crude into commercial inventories, commercial stocks still fell 8 million barrels—that's a combined 16 million barrel draw, folks."

However, gasoline and distillate fuel inventories increased last week, attributed to higher refinery processing rates and weaker demand following the Memorial Day holiday weekend.

Economists at Macquarie stated in a report that a global oil supply surplus prior to the conflict is the primary reason the market remains relatively calm, with near-term Brent crude prices still below $100 per barrel. Macquarie anticipates that oil prices would fall significantly if the Strait of Hormuz reopens in the near term. However, "with inventories being drawn down rapidly, if the strait remains closed, prices will need to move substantially higher at some point. The clock is ticking."

Analysts suggest that at the current rate of drawdown, the market "can hold on for the next couple of months," but if the Strait of Hormuz remains closed by the end of the summer, "a material tightening of spot supply" would be faced. Robert Yawger of Mizuho Bank pointed out in a report, "Every day the Strait of Hormuz is closed, 11 to 14 million barrels per day of oil is kept out of the market, which must be filled by drawing inventories from elsewhere."

Oil futures rose for a third consecutive session on Wednesday, driven by renewed concerns over prolonged supply disruptions following renewed conflict between the US and Iran. At settlement, the front-month July crude oil contract on the New York Mercantile Exchange (Nymex) surged 2.4% to $96.02 per barrel. The front-month August Brent crude contract gained 1.9% to $97.81 per barrel. Simultaneously, the front-month July natural gas contract on Nymex rose 1.5% to $3.214 per million British thermal units (MMBtu).