Falling US oil inventories put upward pressure on fuel prices

Three weeks ago, US President Donald Trump noted that “massive numbers” of empty oil tankers were on their way to the US, to be loaded with crude and products. This week we have seen the results, as that fleet of tankers began carrying badly needed supplies to markets around the world.

The consequences for the US are tighter fuels markets and upward pressure on prices. American consumers, already concerned by the rise in gasoline prices over the past two months, are facing further pressure on their household finances.

On Thursday, President Trump said that temporarily higher fuel prices were a price worth paying to prevent Iran acquiring nuclear weapons. “Gas will go down as soon as the war’s over, and it’ll drop like a rock,” he said. “There’s so much of it. It’s all over the place.”

For the time being, however, strains on the global energy system are becoming more evident.

US exports of crude oil and petroleum products hit a new record high last week at 14.2million barrels per day, according to Energy Information Administration data. The number was 33% higher than for the equivalent week in 2025.

Meanwhile, US oil inventories have been plunging. Total US stocks of crude and products, including the Strategic Petroleum Reserve, fell by about 24.1 million barrels last week – one of the five largest weekly declines on record.

Tightening markets are being reflected in steep increases in retail prices. The average retail price of unleaded gasoline in the US was about US$4.43 a gallon, according to GasBuddy.com, up 36 cents a gallon over the past week. It is now only about 60 cents below the record high of US$5.03 a gallon, set in June 2022.

US diesel prices are even closer to record highs. The average retail price of diesel was US$5.57 a gallon on Friday, according to the Automobile Association of America. The record high, also from June 2022, is about US$5.82 a gallon.

Rising fuel prices add to the pressure on the administration and the US economy. A new Gallup poll this week reported that 55% of people said their personal financial situation was getting worse, a record high in the 25-year history of that survey.

Also this week, inflation as measured by the core Personal Consumption Expenditures price index was reported as having risen in March to 3.2%, the highest rate since November 2023. The core index is the measure most watched by the US Federal Reserve. It excludes energy and food, but does reflect price increases that companies have made in response to higher fuel costs.

With the midterm elections on 3 November now only six months away, questions about the status of the Strait of Hormuz and world oil supplies are likely to become increasingly salient in American politics.

The Wood Mackenzie view

The surge in US oil exports last week was a reminder that, even as the world’s largest producer, the country remains exposed to international shocks because it is connected to world markets. As markets in other countries tightened, American crude and products responded to market signals and flowed out to those countries, putting upward pressure on prices in the US.

The spread between Brent crude and US benchmark WTI has been volatile in recent weeks, but the two markets have moved broadly together. Since the war began at the end of February, Brent futures for July delivery have risen about 58%, while WTI futures for the same month have risen about 55%.

The outlook for US fuel costs, and hence consumers’ finances, still depends critically on what happens in world markets. And that in turn depends on what happens in the Strait of Hormuz.

Last month, Wood Mackenzie analysts published an analysis showing the oil prices that would be needed to balance global supply and demand if the strait remains closed. Sustained disruption with very low levels of traffic through the strait would cut world oil supply by roughly 10 million barrels per day Cutting global demand by enough to match that would need Brent crude prices of more than US$200 a barrel. Those prices would work to reduce oil use through both substitution effects and lower GDP.

If crude does reach those levels, US gasoline prices would go significantly higher than they are today, reaching new record highs, and the global economy would suffer a severe recession.

The combined impact on the US economy would make the pressures we have seen so far seem mild by comparison.

Shell acquires Canadian gas assets in US$16 billion ARC Resources deal

As I wrote in the previous Energy Pulse, the Iran war is sparking interest in oil and gas assets around the world that do not rely on export routes through the Strait of Hormuz. Shell this week announced a US$16 billion deal to acquire some of those assets, entering into a definitive agreement to buy TSX-listed ARC Resources.

ARC holds a liquids-rich position in the Montney shale of British Columbia and Alberta. Although condensate is only about one‑quarter of its production, the liquids generate over half of total revenue, because Canadian condensate prices trade at or above WTI. The gas can also be used to support the LNG Canada project, where Shell has a 40% stake.

Phase 1 of LNG Canada began operating last year, with its second train starting up in January. Wood Mackenzie expects Phase 2 will receive final investment decision in 2027. The ARC acquisition secures control of gas supply to feed that plant, underpinning the economics of LNG Canada Phase 2 for the long term.

Shell has also been reported to be selling part of its stake in LNG Canada

The ARC acquisition follows a wave of LNG buyers taking stakes in North American upstream gas production, a trend that was under way well before the Iran war began. In the past 12 months, Japan’s Mitsubishi, Tokyo Gas and JERA have announced deals for US gas assets.

In brief

The United Arab Emirates announced that it is withdrawing from OPEC, the oil-producing countries’ group that it first joined in 1967. In a statement explaining its move, the UAE said the decision reflected its long-term strategic vision, including “accelerated investment in domestic energy production”, and was based on “our commitment to contributing effectively to meeting the market’s pressing needs”.

See Simon Flowers’ latest The Edge column for more detailed analysis.

The US state department has warned China over its actions against Panama. In a joint statement with the governments of Bolivia, Costa Rica, Guyana, Paraguay and Trinidad and Tobago, the US said it was “ monitoring with vigilance” China’s targeted economic pressure on Panama. That pressure has included numerous moves to impede or detain Panama-flagged vessels. One estimate suggests more than 90 Panama-flagged ships were detained in Chinese ports in March.

In January, Panama’s Supreme Court ruled that two concessions held by CK Hutchison of Hong Kong, to operate ports at either end of the Panama Canal, were unconstitutional. That ruling was praised by the US, which has been seeking to displace China’s influence over the canal.

The US-led statement this week said the six countries stood together in solidarity with Panama, and reaffirmed that “the freedom of our region is non-negotiable”. It added: “We remain dedicated to facing all threats to ensure the Americas remain a region of freedom, security, and prosperity.”

Other views

UAE’s exit rattles OPEC’s grip on the oil market – Simon Flowers, Alan Gelder, Douglas Thyne, Alexandre Araman, Dalia Salem and Hazel Seftor

Four carbon policy developments that impact E&P decision-making – Stephen Vogado, Chenglin Wu, Shashank Atreya and Michelle Uriarte-Ruiz

Valero Port Arthur refinery: a month after the explosion – Jake Eubank

The great commodities disruption – Martin Wolf

Quote of the week

“Those public schools [in Texas]… they were funded by the oil and gas industry. So I owe everything to this industry. And a lot of people in south Texas would say the same thing. These are some of the best jobs you can get. And they are keeping whole families afloat. And so the idea that politicians in Washington think they can just eliminate this industry, eliminate these jobs, it’s something we’re going to have to fight against. It’s something we’re going to have to fight against in our own party.”

James Talarico, a Democrat who is running to be elected as a US senator for Texas, rejected the opposition to the oil and gas industry that has dominated his party’s policy positions in recent years. He described himself as a strong supporter of renewable energy, but said he he did not believe that it had to be an either/or choice with fossil fuels. Ending the use of oil and gas would not be possible in practice, and would do severe damage to the economy of Texas, he added.

Chart of the week

This comes from a new Wood Mackenzie note on the US data centre electrical equipment market. It vividly illustrates the challenge of building out 100 gigawatts or more of computing capacity over the next few years.

The bars show the number of pieces of electrical equipment of different kinds needed for each block of data centre capacity. Reliability is critical for data centres. Developers and operators often talk about “five nines” reliability: being available 99.999% of the time. That means data centres need a lot of redundancy to protect against equipment failures.

Because of that, data centres have a significantly greater intensity of electrical equipment per unit of energy consumed than standard industrial or commercial facilities. Every new gigawatt of data centre capacity requires between US$2.8 billion and US$4 billion of electrical equipment, depending on the type of facility.

As the report notes, these are staggering figures, much higher than in other sectors. For more explanation, further details on the data centre equipment market and some initial ideas on how to navigate these challenges, download the summary here.

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