Increasing backwardation has prompted participants in the seaborne physical crude market to shed inventories. Since reaching a record high of 387.3 million barrels on June 15, U.S. crude inventories have fallen by 22.8 million barrels (325,000 bbl/d). This draw is significantly larger than the 8.0-million-barrel draw typically seen over this period. The largest draws have been on the Gulf Coast, where inventories have decreased 8.1 million barrels since June 15, a period during which they are typically flat. Reduced import flows are supporting the inventory draws on the Gulf Coast. Weekly data indicate that for the week ending August 3, four-week average crude oil imports on the Gulf Coast reached their lowest point since 1996. This low can be partially attributed to depressed differentials for light sweet U.S. coastal crude grades, such as Louisiana Light Sweet, relative to comparable globally traded crudes. Increased tight oil production in the United States has backed out demand for imports into the Gulf Coast. Moreover, relatively favorable economics have incentivized high levels of runs at U.S. refineries this summer.
As of August 24, total U.S. crude oil inventories were 25.4 million barrels above their five-year average level. However, because of infrastructure capacity constraints to ship crude oil from PADD 2 to the Gulf Coast, a large portion of these inventories are accessible only to the limited number of refineries with connections to the Cushing hub. In contrast to the backwardated global oil markets, the high levels of crude inventories in Cushing and PADD 2 as a whole continue to keep the time structure of the NYMEX light sweet crude oil futures market, which has its trading hub at Cushing, in contango. Depressed prompt prices in the central United States have persisted since growing production volumes outpaced the capacity of pipelines to bring sufficient volumes of the landlocked crude to global markets, and the price structure of the NYMEX futures contract reinforces high inventory levels at the hub.