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West Texas Intermediate Says US is Driving towards Supply Crunch

A main price spread in the West Texas Intermediate crude market indicates that oil traders anticipate a supply shortage just ahead of the busy summer driving season, which drives up demand. According to Bloomberg reports, the June-July West Texas Intermediate time-spread, also known as the prompt cash roll, traded at 20 cents a barrel on Tuesday, the highest level since May 2020. The spread is used to gauge supply and demand balances at Cushing, Oklahoma, the country’s largest crude storage center.

Its recent strength indicates that inventories are low at a time when oil refiners are increasing production. This is just the latest sign of how tight crude supplies are in the United States, as shale producers remain cautious after last year’s oil crash. Meanwhile, as the world’s largest economies recover, commodity demand is surging across the board. This is fueling inflation fears, which is why some traders are predicting a solid finish to this year’s supercharged rally in oil, metals, and agriculture.

West Texas Intermediate Says US is Driving towards Supply CrunchEven though benchmark West Texas Intermediate oil futures have risen more than 35 percent this year and are trading at pre-pandemic levels, US oil production is hovering around 2 million barrels per day, well below last year’s high. Drillers are keeping their promises to investors on austerity. In reality, explorers are only adding enough rigs to offset natural declines at existing wells.

Meanwhile, inventories at the Cushing center are lower than the five-year average. At the same time, American refiners are preparing for a surge in summer demand, following the country’s vaccination drive, which has resulted in a steady reopening of states.

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