US energy companies withdraw crude stocks from strategic reserves as demand rises

Department of Energy figures show 2.2 million barrels have been reclaimed since the beginning of August

The US government stepped in to help the industry at a time when US benchmark, West Texas Intermediate, collapsed below zero to trade at -$40 per barrel. Bloomberg

Oil markets are entering a new phase of recovery as US energy companies, which had previously parked crude in the country’s Strategic Petroleum Reserves (SPRs), withdraw stocks to meet rising demand.

Energy majors such as Exxon Mobil are taking back millions of barrels of crude from SPRs, according to the Department of Energy, which showed a withdrawal of 2.2 million barrels since the beginning of August.

The stocks are a fraction of the 23 million barrels that the US government agreed to store on behalf of energy companies, which ran out of options at the height of the demand slump in March and April due to the coronavirus pandemic.

The US Department of Energy has agreed to store the crude until March 31, 2021, for a small fee.

The move comes as demand for crude picks up around the world as mobility restrictions in place since March are being eased.

In April, the US Department of Energy said it was filling up its SPRs as a way to soak up supply from independent producers. Dan Brouillette, the US Energy Secretary, said the government was allocating around 77 million barrels of storage space to the industry.

The government stepped in to help the industry at a time when the US crude benchmark, West Texas Intermediate, plunged below zero to trade at -$40 per barrel as contracts for delivery in May neared expiry. The dramatic collapse in US crude followed the saturation of storage space at the benchmark’s delivery point at Cushing in Oklahoma.

The view on demand remains positive, with oil prices currently trending at five-month highs above $45 per barrel.

Benchmark Brent, under which most of the world’s crude trades, was up 1.53 per cent to $45.18 per barrel at 4.12pm UAE time on Wednesday. WTI was up 1.59 per cent to $42.27 per barrel.

Saudi Aramco, the world’s largest oil-exporting company, was also bullish in its estimation of global demand following its second-quarter results earlier this week.

Amin Nasser, Saudi Aramco’s president and chief executive, said on Monday he expects demand to reach 90 million barrels per day and above by year-end, close to the volumes seen before pandemic. The company, which sells around three-quarters of its crude to Asia, remained optimistic about the pick-up in demand in countries such as China, India, South Korea and Japan.

Saudi Aramco, the world’s biggest energy company, saw its profits decline 73.4 per cent for the second quarter. However, the state oil company reaffirmed plans to pay $75bn in dividends to shareholders regardless of market conditions as it remains bullish about achieving higher revenue from rising demand in the remainder of the year.