U.S. Crude Oil Inventory Rises 6.56 Million Barrels, Far Exceeding Expectations as a Hedge Against Middle East Supply Disruption Crisis

Despite attacks on the UAE energy infrastructure and rising geopolitical risk premiums, oil prices declined on Wednesday. U.S. crude oil inventories surged well beyond expectations, becoming a key factor in offsetting geopolitical pressures.

On March 18, according to Reuters citing data from the American Petroleum Institute (API), for the week ending March 13, U.S. crude oil inventories increased by 6.56 million barrels, far exceeding the 380,000-barrel increase expected by Reuters surveys. The strong inventory data significantly shifted market sentiment. As of press time, Brent crude fell 1.3% to $98 per barrel; WTI crude dropped 2.6% to $93 per barrel.

Meanwhile, Citibank warned that if transportation disruptions in the Strait of Hormuz persist over the next four to six weeks, the global market could see a daily reduction of 11 to 16 million barrels of oil supply, potentially pushing Brent crude prices to around $110 to $120 per barrel.

Ongoing Developments in the UAE Attacks

Recent geopolitical risks causing oil price volatility continue to escalate, and supply disruptions remain a concern.

UAE energy facilities have been repeatedly attacked, including drone strikes on the world’s largest ultra-acid natural gas facility, fires in the Fujairah oil industrial zone, and damage to an oil tanker near the Strait of Hormuz. The Shaybah oil field is still shut down due to a fire caused by a drone attack. This field is operated jointly by Abu Dhabi National Oil Company and Western Oil, with a daily capacity of over 1.28 billion standard cubic feet.

Market focus also centers on precise U.S. military strikes on Iranian missile sites along the Strait of Hormuz. According to Xinhua News Agency, the U.S. Central Command posted on social media on the 17th that U.S. forces used multiple 5,000-pound earth-penetrating bombs to strike Iranian missile sites along the Strait of Hormuz.

Lipow Oil Associates President Andy Lipow believes that while the use of earth-penetrating bombs by the U.S. military may temporarily increase volatility in the oil market, it could also create conditions for restoring safe passage through the strait.

Citi: Oil prices could hit $200 in extreme scenarios

Citi maintains a cautious outlook on the recent oil market, expecting short-term prices to remain under pressure.

Their baseline scenario assumes that if shipping disruptions in the Strait of Hormuz persist for four to six weeks, there could be a daily interruption of 11 to 16 million barrels of oil supply, potentially pushing Brent crude prices to the $110 to $120 range.

In more extreme risk scenarios, if supply disruptions extend longer or energy infrastructure suffers broader damage, Citi projects Brent crude prices in the second and third quarters could rise to $130 per barrel, with peaks possibly reaching $150. Considering the impact of refined product supply disruptions, prices could even surge to $200.