Global Volatility Drives Cautious U.S. Crude Market Behavior

Domestic crude balances softened further last week, with inventories building 3.08 MMbbl for a seventh straight week as refinery runs declined and production edged lower, but this conservatism appears increasingly tied to heightened global volatility rather than weak underlying economics. Escalating tensions around Iran and the Strait of Hormuz drove a sharp repricing of supply risk, pushing WTI up to $111.54/bbl and reinforcing a steep backwardated structure, which in turn incentivized market participants to remain cautious with runs and inventory management. That same global disruption redirected flows, with U.S. crude exports surging 630 Mb/d to 4.15 MMb/d as Midland barrels moved competitively into Europe and Asia amid constrained Middle East supply. Imports declined overall, though stronger Canadian inflows into PADD 2 partially offset the drop and underscored the growing reliance on regional barrels during periods of global instability. Refining margins compressed notably, with the 3-2-1 crack spread falling to $40.67/bbl (see chart below), but still remained elevated enough to support high runs, reinforcing the view that operational caution, not margin erosion, is driving the recent pullback in refinery activity.