The US is 'playing with fire' as oil reserves plunge to a 40-year low, markets guru Larry McDonald says
- The US is "playing with fire" as its oil reserves drop to a 40-year low at a time when crude prices are surging, Larry McDonald warned in a post on X.
- "Queasy, indeed..." the markets guru wrote in a previous post illustrating falling US strategic petroleum reserves.
The US is "playing with fire" as its oil reserves plunge to a 40-year low at a time when global crude prices are rallying again, markets guru Larry McDonald said.
The founder of "The Bear Traps Report" has taken to X, formerly known as Twitter, to warn about the steep drop in US oil inventories.
"Queasy, indeed...," he wrote in an earlier post with a graph showing a steep drop in US strategic petroleum reserves. McDonald is a former Lehman Brothers trader and the author of "A Colossal Failure of Common Sense," which chronicles how the investment bank ended up collapsing in September 2008 and sparking a global financial crisis.
The plunge in oil stocks highlights the mounting risks to America's energy security. Low domestic reserves could increase the US's reliance on imports, potentially making it more vulnerable to supply disruptions and price volatility in the global oil market.
McDonald has dialed up his warning in his most recent post by charting falling US oil inventories against surging Brent oil prices. The international crude benchmark has charged upward in recent months, jumping almost 30% since late May.
Oil prices have been climbing as top global producers, including Saudi Arabia and Russia, extend production cuts announced earlier this year in a bid to maintain price stability.
After the Ukraine war broke out in early 2022, the US government has used its Strategist Petroleum Reserve (SPR) as its biggest buffer against global energy-price volatility. Last year, it released 180 million barrels from the SPR to hedge against expensive oil prices, and cool decades-high inflation.
While the Biden administration has been planning to replenish the SPR, the amount of barrels left in the reserve is currently less than half of the all-time highs reached in 2010.
With oil prices marching higher, the situation only stands to worsen US inflationary pressures, potentially forcing the Federal Reserve to keep interest rates elevated for longer.