US is oil supplier of last resort as Hormuz disruptions worsen

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(Bloomberg) — The tankers have been arriving from all over the world in unprecedented numbers. After loading up in Alaska and along the US Gulf Coast, they head back out to sea — to Japan, Thailand and even as far as Australia.

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All told, over the past nine weeks, more than 250 million barrels of crude from oil wells and storage tanks across the US have been shipped overseas. That’s made the country, once again, the No. 1 exporter of crude, overtaking Saudi Arabia, and turned it into a lifeline for global consumers as the near closure of the Strait of Hormuz throttles Middle Eastern supplies.

But record American exports also come with warnings that this supply cushion is rapidly being pushed to its limits. Many energy experts are questioning how long shipments can be sustained at such levels. US domestic inventories are quickly depleting, with total oil and fuel stockpiles drawing down for four straight weeks to below historical averages. Meanwhile, America’s oil producers are struggling to keep up.

“Ships are coming to take our oil, but once significant volumes of oil are leaving the United States, it can be expected that balances will tighten,” said Clayton Seigle, a senior fellow at the Center for Strategic and International Studies in Washington. “We are digging ourselves a hole in terms of spending down inventories.”

It’s a problem with global consequences. Even with a steady stream of US exports in recent weeks, it hasn’t been enough to eclipse the supply shortages sparked by the choking off of the strait. Brent crude, the key benchmark, has jumped roughly 50% since the war broke out and just last week topped $126 a barrel, the highest since 2022. If America’s crude shipments are now nearing their maximum, the competition for barrels will grow even stiffer.

Within the US, energy inflation is already projected to factor heavily into November’s midterm elections. Retail gasoline prices are soaring, and some voters are sure to question why so much oil is being shipped out to international markets. US President Donald Trump has been boasting about the surging exports. “This has been amazing,” he said Friday. “The amount of oil and gas that we’re selling now is at a level that nobody’s ever seen.”

In the months after Russia invaded Ukraine in 2022, the average cost of a gallon of unleaded gasoline in the US topped out just over $5 a gallon. It’s a threshold Energy Secretary Chris Wright has emphasized, to draw a contrast with lower fuel costs today. And it will be a key level to watch over the next few months leading into the election. Average prices for US retail gasoline have already topped $4.40 a gallon.

“The United States is insulated, but not isolated,” from the energy crisis sweeping the world, said Jay Singh, head of US oil and gas research at Rystad Energy.

Much of the oil leaving American shores during the Iran war has headed to Asia. The region’s refiners until recently relied on the Persian Gulf as their main source of oil supply, with the war now forcing a hard pivot toward US crude.

One striking example is Japan. Before the war, the nation bought around 90% of its crude and fuel supply from the Middle East, along with only minimal volumes of American oil. Now the country is among those first out of the gate to snap up US supply. Sales of supplies that will be loaded in June, and which will arrive in August or thereabouts, began just days ago and Japanese refiners collectively have already bought at least 8 million barrels of US crude, said traders familiar with the matter.

In Singapore, a regional commodity trading hub, refiners have also swung to purchasing more US crude. And demand from South Korea — long the world’s second-biggest buyer of US crude — remains strong.

To be sure, Japan and South Korea have crude stockpiles of their own to help provide a buffer. Limited crude flows from the United Arab Emirates and Oman are also still taking place. Questions remain, however, over how long such supplies can last — especially with little publicly known about the national storage levels. And other exporters, such as Brazil, don’t typically ship the crude grades that these Asian nations need most.

The transformation of the US from a net importer of oil to a major global supplier is relatively new.

The shift was sparked by the shale revolution of the early 2000s, when horizontal drilling and hydraulic fracturing from Texas to North Dakota swiftly boosted domestic production. In 2015, the US lifted a ban that prohibited most oil exports, which was imposed in the wake of the 1970s Arab oil embargo. By 2019, booming shale production made the country a net exporter of crude and fuels.

Analysts say America’s emergence as an energy juggernaut underpins its ability to take increasingly bold foreign policy steps. This year alone, the US ousted Venezuela’s long-time leader, enforced sanctions on two of Russia’s biggest oil companies and, along with Israel, started the war in Iran — all moves that threatened global crude balances.

Trump — a relentless champion of what he calls America’s “energy dominance” — has repeatedly boasted about the ability of the US to help fill the massive crude supply gap created by the war in Iran.

“We have more oil production right now than any time in history,” Trump said to reporters on Friday. “And if you take a look at the ships, they’re all coming up to Texas, Louisiana, Alaska.”

Presidents going back to Jimmy Carter in the 1970s have worried about fuel supplies, with the concern influencing foreign policy. Trump, emboldened by the world’s largest oil-producing economy, could worry less about domestic shortages than his predecessors.

Still, as US oil output grew, even the Obama administration was citing domestic supply as an assurance in trying to rally global support behind the Iran nuclear deal known as the Joint Comprehensive Plan of Action.

“The US becoming a net exporter of petroleum — a net exporter of energy — changed everything about our foreign policy in areas where energy is a factor,” said Kevin Book, managing director at ClearView Energy Partners, a Washington-based consulting firm. “Since energy is a factor in almost everything, it basically changed our foreign policy.”

But America’s energy dominance is now testing its upper limits.

Oil production is down about 100,000 barrels a day since the Iran war began. Drillers have so far mainly been hesitant to increase production, even as oil prices spiked, because it’s hard to predict where markets are headed next.

In a series of anonymous comments published in late April by the Federal Reserve Bank of Dallas, energy executives cited chronic uncertainty over the outcome of the war and its effect on supply and demand. “The unpredictable nature of the current administration makes business modeling near impossible,” one respondent was quoted as saying in the report.

Oil majors such as Exxon Mobil Corp. and Chevron Corp. are also dealing with disruptions for their Middle East operations. Chevron’s CEO Mike Wirth said Friday that the global energy system is under “extreme stress.” That came a day after ConocoPhillips warned “critical shortages” of oil are imminent.

As US oil exports hit records, traders say shipments are beginning to test practical limits, with infrastructure and shipping constraints capping how much crude can consistently leave the US Gulf Coast. While headline capacity is often cited near 10 million barrels a day, a realistic consistent ceiling could be closer to the current 6 million barrels a day, though it could approach 7 million in short bursts, according to traders.

The primary bottleneck lies on the water, where vessel availability and costly offshore lightering operations — when oil is transported between ships — will restrict loadings.

Rising exports also come at the cost of domestic stockpiles. Combined US reserves of crude and oil products have dropped by 52 million barrels in four straight weeks of declines.

Inventory draws are expected to persist as the war drags on, and multi-million-barrel declines are possible through May, according to Ryan McKay, a TD Securities commodity strategist.

Oil-options traders are now placing bets to protect against a big unwinding in US exports. Some are even holding wagers that stand to profit if the Trump administration were to impose an export ban, which the administration has so far signaled is off the table.

Positions have been building in put options — now totaling the equivalent of some 22 million barrels across contracts from July through November — that would pay out if West Texas Intermediate, the US benchmark, started trading at a discount of $45 a barrel below Brent crude futures. The spread between July WTI and Brent settled at -$11.63 a barrel on Friday.

Trump administration officials have repeatedly ruled out any kind of curbs on exports of US oil or refined petroleum products, even reiterating the stance in private conversations with energy executives who’ve warned against restrictions, according to people familiar with the discussions.

“That is the fastest growing export out of country,” Energy Secretary Chris Wright said Tuesday, when asked about the prospect of a ban on US energy exports. “We’re selling American natural gas, American oil, American jet fuel, diesel and gasoline around the world. We’re not going to stop those exports. We’re going to grow those exports.”

Still, the US is exporting large volumes of crude and fuel at a time when domestic pump prices are climbing.

A gallon of gasoline in the US is now, on average, more than $1 higher per gallon than when the war began. Diesel, the lifeblood of the economy, is up by almost $2.

Fuel demand is also set to increase as Americans hit the road for vacations in what’s known as summer driving season.

The Trump administration has taken some measures to tame energy inflation, including waiving a 100-year-old maritime law to make shipping oil easier and allowing for more ethanol to be blended into gasoline. But the White House’s toolkit is limited, which is partly why traders keep speculating over possible export restrictions.

“Bad ideas rejected at $4 a gallon prices might get a second look at $6 a gallon,” said ClearView’s Book.