(Public) We Are Going Full Speed Into The Wall

The most visible oil inventory will reach tank bottoms.

The oil market is inefficient. Oil prices, as of this writing, are supposed to start pricing in demand destruction to prevent global oil inventories from hitting tank bottom, but instead, oil market participants care more about MOUs and fake news headlines more than fundamentals.

It is what it is.

But I’m here to tell you that we are now weeks away from hitting these operational minimums. What we are witnessing today is the fastest onshore oil inventory decline in history, and even if the Strait of Hormuz opens this very second, the inventory declines are inevitable.

Analogy

I’m going to use personal finances as a way to describe the oil inventory situation we are in.

Oil inventory = bank accounts

Tank bottom/Operational minimum = minimum balances in bank accounts

SPR release = mommy and daddy giving you money

Oil demand = spending

Oil supply = income

In March 2026, your income was reduced by 20% (Strait of Hormuz closed). You started delivering via DoorDash/Uber. You recovered ~9% of the lost income.

Now your income is down 11%.

Mommy and Daddy wanted to help. So they are giving you 2.5% to 3% of your lost income.

Now you are down to only 8-8.5%.

But you are irresponsible. So you keep spending as if you are earning 100% of your original income. Instead of eating out every night, you are doing it 6 times a week. You reduced your spending only slightly, 2%.

This whole time, you are burning through your savings.

First, you burn through the cash under your mattress (floating storage).

Then, you burn through your weed money (black market barrels, Venezuela/Iran/Russia).

Now, you are burning into your bank account (onshore visible inventories).

The most visible one of them all is your savings account (US oil inventories). You know not to touch that since it’s the account of last resort. But you just love spending money. I mean who can blame you, you have had the same lifestyle for years and every year, you spend more (1 to 1.4% more).

Now you are spending your account to the point where, in the next 8 weeks, you can see it running out of money. That’s with Mommy and Daddy giving you money to stay afloat.

What are you going to do?

1. Stop spending the excess amount of money (destroy demand).

2. Earn more money (increase supply).

Neither of them is easy. You’ve already done everything you can, so the decision is hard. It’s either you make the decision now or you run straight into the wall at full speed.

That’s where we are in the oil market today.

A Word On Satellite Data Providers

Before I continue, I want to make a quick comment on satellite onshore oil inventory providers. In my past experience using satellite firms, the data has always been revised retroactively.

Here’s a clear example. US oil inventory data, the most visible in the world, cannot be accurately forecasted by satellite providers with any degree of confidence.

In the past, 3rd-party providers used drones and helicopters to fly over Cushing to take images of the floating roof tanks to track inventory levels. Even these services couldn’t provide pinpoint accuracy, but the direction was genuinely spot on.

In this case, using satellite imagery that captures only 70-80% of floating roof tanks, with the possibility of distorted images or bad weather, should not be taken as gospel. Satellite provider datasets on global onshore storage are just a tool to gauge the general trajectory of inventories, but when a once-in-a-lifetime event like the one we are seeing today unfolds, these providers seldom offer the clarity that you want. There are guardrails in place in case the data spits out something asinine. But asinine data is what we have today.

This is the fastest most visible onshore oil inventory decline in history.

Why do we know that?

Because the US offers the most transparent oil inventory data, and we see it right in front of our eyes.

So the next time you see satellite data and think it’s the gospel, please take what I wrote here and take it with a grain of salt.

If you know how the sausage is made, you might not think highly of it after.

Full Speed Into The Wall

The oil market is like that irresponsible kid who’s still spending recklessly despite a material drop in income. That 8-week window is exactly what’s going to happen to US commercial crude storage.

Note: Includes next week’s estimate above already.

With SPR releasing 9 to 10 million bbls a week, our preliminary estimate shows another 13 to 14 million bbl draw next week. Now that US refinery throughput hit ~17 million b/d, US commercial crude draw will see the full force of the inventory declines.

This will be first seen in Cushing where inventories will reach tank bottom by the end of June.

It will then be followed up by distillate, which is 6 million bbls away from reaching operational minimums.

Gasoline storage will follow with storage ~10 million bbls away from reaching operational minimum.

Collectively, gasoline and distillate have ~16 million bbls to spare, but the reality is that another 2-3 weeks of 4 to 5 million bbl draws will put us in no-man’s land.

The equivalent of this is like living paycheck-to-paycheck. Yes, you might prevent outright shortages, but the moment there are any disruptions:

• Refinery outages

• Pipeline disruption

• Hurricane

You will have gasoline shortages. On the wholesale level, this level of inventory offers very little margin for error. Ideally, you want to be stocked up enough to leave room for unforeseen events. But thanks to much higher global gasoline and diesel prices, US refineries are incentivized to export any excess, leaving very little breathing room here.

Now, if the market were efficient, we should have punched demand in the face by now to slow the decline, but we didn’t.

Gasoline demand is flat y-o-y.

Distillate demand is slightly lower y-o-y.

Implied demand has not dropped enough to offset the incoming inventory declines. So yes, we are running full steam into the wall.

What’s even more troubling about everything I’m writing is that this was all written in stone at the end of April. The visible oil inventory draws were going to happen regardless of the status of the Strait of Hormuz. Now that we are a month and a half past the oil market breaking point, we are just going to hit the wall. There’s no other way around it.

Note: Total oil inventories ex-SPR are projected to decline at 7 to 8 million bbls per week. Total oil inventories with SPR are projected to decline at 17 to 18 million bbls per week.

Physical Shortages

I am now firmly in the camp that we will just need outright shortages to show up to wake everyone up. I can sit here and write all day about how inventories will decline and blah, blah, blah, but no one cares. It’s obvious if you look at how oil prices still respond to every fake Axios headline saying that a peace deal MOU is imminent.

I guess it really is what it is. The oil math hasn’t changed, but the market somehow believes it did because the price responded negatively. Human nature will never change, markets are inefficient, there’s no other way to describe this.

So if this means we just need to go full speed into the wall, then so be it.

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Analyst’s Disclosure: I/we have a beneficial long position in the shares of USO, UCO, BNO either through stock ownership, options, or other derivatives.