Exxon Warns Oil Inventories Are Near Crisis Levels as Emerging Markets Dump US Treasuries

Key Takeaways

• Exxon Mobil warned that global oil inventories across crude, gasoline, and diesel are approaching unusually low levels as Middle East supply disruptions continue
• Energy researchers say US fuel storage levels are tightening ahead of peak summer demand, even as Brent crude futures remain below $95 per barrel
• Oil-importing emerging markets sold roughly $86 billion in US Treasuries in March, marking the largest monthly decline since 2011 amid rising energy costs

Oil futures have stayed relatively calm this week, but some energy executives are warning that the physical market is getting tighter underneath the surface. Exxon Mobil says inventories of crude, gasoline, diesel, and jet fuel have fallen sharply in recent months. This is due to supply disruptions tied to the Middle East that continue to weigh on the market. At the same time, several oil-importing economies have been cutting their US Treasury holdings.

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Physical Oil Markets Are Starting to Tighten

Speaking at Bernstein’s Strategic Decisions Conference in New York, Exxon Mobil senior vice president Neil Chapman said global oil inventories are moving toward unusually low levels. He warned that prices could rise quickly once storage tightens further.

According to CNBC, Chapman said inventories across crude and refined fuels have “all run down.” He noted that the market could see a sharper move higher once inventories hit minimum operating levels. Chapman added,

“We’re approaching unheard of inventory levels. I mean really, really low levels. You can debate whether that’s going to hit, those really low levels, in two weeks or three weeks. Once you get to that point, then you’ll see price shoot up.”

The comments come even as Brent crude futures remain below $85 a barrel. Markets have largely focused on the possibility of a longer US-Iran ceasefire agreement and hopes that shipping flows through the Strait of Hormuz will stabilize.

Despite this, supply concerns haven’t disappeared. The International Energy Agency said earlier this month that global inventories are being drawn down at one of the fastest rates on record after disruptions linked to the Middle East conflict.

HFI Research also warned this week that US gasoline and distillate inventories are nearing levels that leave very little buffer for additional outages or refinery disruptions during the summer driving season.

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Oil-Importing Economies Cut Treasury Holdings

The pressure is also beginning to show up in bond markets. Recent data showed oil-importing emerging markets reduced US Treasury holdings by roughly $86 billion in March, the largest monthly decline since 2011.

Higher oil prices tend to pressure countries that depend heavily on imported fuel because they increase dollar demand and widen trade deficits. Analysts say that this often forces governments and central banks to tap reserves or reduce foreign asset holdings to manage liquidity.

Oil prices remain below the levels many physical traders expected earlier this month. But inventory data and fuel storage trends suggest the market is tighter than futures prices currently imply.

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