The U.S. petroleum reserve system is far from ready to handle a potential breakdown of the U.S.-Iran ceasefire and a resumption of hostilities.
While international oil prices retreated to pre-conflict levels and tanker traffic through the Strait of Hormuz gradually resumed after President Trump announced a temporary ceasefire in mid-June, refilling depleted crude inventories will require a considerable amount of time.
Data from the U.S. Department of Energy shows that in the week ending last Friday, U.S. commercial crude oil inventories increased by 3 million barrels, marking the first rise after ten consecutive weeks of decline.
Current inventory levels remain low. At Cushing, Oklahoma, a key inland crude storage hub, inventories have reached operational capacity limits, making it extremely difficult to draw down further supplies. Concurrently, the U.S. government's Strategic Petroleum Reserve, stored in underground salt caverns along the Gulf Coast, continues to shrink, with stockpiles hitting their lowest level since 1983.
With President Trump now announcing the termination of the ceasefire agreement, the energy market situation could deteriorate further.
Andy Lipow, president of Lipow Oil Associates in Houston, stated, "When inventories fall to their minimum operating level, the most concerning scenario for the oil market later this year could materialize."
He added, "Only higher prices that force a reduction in demand will bring supply and demand back into balance. Once inventories are completely exhausted, the market will have no buffer resources left."
While energy industry executives and analysts are not currently predicting a repeat of this spring's oil crisis that pushed prices above $100 per barrel, they warn that renewed blockades of shipping through the Strait of Hormuz—through which about 20% of global oil trade passes—would pose a severe threat to U.S. energy security.
If the U.S. is forced to continue drawing on its strategic crude reserves, it would lack sufficient emergency stockpiles to cushion against future global oil supply disruptions or natural disasters like hurricanes impacting fuel supply chains. Oil prices would surge again, forcing consumers and buyers to cut back on fuel demand.
Following President Trump's order for new strikes against Iran this week, U.S. crude oil prices rose about 5% by early Thursday trading to approximately $73.90 per barrel, their highest level since late June. Refined product prices saw even sharper gains: gasoline futures rose 6.1%, while diesel prices soared over 10%.
The U.S. and other nations will need months, if not years, to replenish oil inventory shortfalls. A major short-term obstacle is the lengthy shipping time required for tankers to travel from the Middle East to destinations worldwide.
However, two factors are relatively favorable for the U.S.: first, crude oil prices are down more than 30% from their April peak; second, structural shifts are occurring in global energy trade flows. Major crude oil importers are currently reducing their purchases, freeing up additional crude supplies in the spot market.
Due to persistently low inventories and falling prices, the volume of crude released from the U.S. Strategic Petroleum Reserve has contracted. While approval was granted to release 40 million barrels of reserve crude, the Department of Energy ultimately auctioned off only about 500,000 barrels.
This move has slowed the growth rate of U.S. crude oil exports.
Data from commodity analytics firm Kpler indicates that U.S. crude oil exports in July are likely to fall below 4 million barrels per day, a level last seen in February before the conflict began.
However, supply tightness in refined product markets like diesel and gasoline has not eased. Kpler data shows U.S. refined product exports remain at historically high levels, with domestic refineries operating at full capacity to supply Asian, European, and Latin American markets.
According to statistics from OPIS, an energy data service under Dow Jones, gasoline inventories along the U.S. Gulf Coast—a core region for refining and fuel exports—are 7.2 million barrels lower than the same period last year and well below the five-year average.
Denton Cinquegrana, chief oil analyst at OPIS, noted, "At the start of the year, local gasoline inventories were far above the upper end of the five-year range. This helps explain why gasoline prices remain firm even as spot crude supplies appear ample."
The national average price for regular gasoline was $3.85 per gallon on Thursday, compared to just $2.98 per gallon at the onset of the conflict.
Jet fuel supply is gradually stabilizing, but U.S. diesel inventories have fallen to their lowest level since the early 2000s. Kpler predicts that U.S. diesel exports in July could approach a record high, driven by demand from Brazil.
Kpler analyst Matt Smith pointed out, "The issue isn't on the crude side; it's in the refined products supply chain, and that problem is now fully exposed."
"Crude supply from the Middle East has fallen by 10 million barrels per day over the past four months, yet oil prices have held around $70 per barrel. The main reason is that global refinery run cuts have offset the supply reduction from crude production cuts."
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