This is a follow-up to my last three posts where I tried to model where SPR, PADD 2 and PADD 3 inventories might stop falling, and then asked what happens if those inventories stop absorbing the supply shortage. I've also included a funny post I came across on my instagram FYP yesterday to give you guys a laugh while going through this post.

Well, the August 12 EIA report gave us major information.

And part of my original model was simply wrong. Model's are not expected to always be right, they exist to help predict what is going to possibly happen which is apart of the scientific method. You propose a hypothesis, and if information comes to light that disproves it; you improve and account for new variables while forming a new hypothesis.

The new report showed:

• SPR: 298.694M barrels → -6.115M
• PADD 2: 101.893M → +2.321M
• Cushing: 22.566M → +1.611M
• PADD 3: 245.235M → +14.680M
• Total commercial crude: 424.410M → +17.422M

So while the SPR was drained aggressively, commercial inventories absolutely exploded higher.

Even after subtracting the 6.115M SPR draw, total U.S. crude inventories still increased by 11.307M barrels.

That is a completely different outcome from what my previous SPR model expected.

1. my SPR floor thesis was wrong

My previous model expected SPR withdrawals to continue decelerating, with roughly another ~1M barrel draw and inventories landing around 303–304M.

Instead:

304.809M → 298.694M

A 6.115M barrel draw.

Not only did SPR break below my ~302.7M modeled floor, the weekly draw accelerated again.

So I don't think it is intellectually honest to simply move the floor lower and pretend the model is still working.

If I force a quadratic onto the SPR inventory level, it produces a trough around roughly 281M barrels around October.

But I don't consider that reliable.

The original SPR thesis was based more importantly on the withdrawal rate hitting zero.

After inserting this week's 6.115M draw, that withdrawal rate model is extremely sensitive to new data on the fitting window. Also, depending on which starting point I use, the zero-withdrawal date shifts by many weeks and in some versions the quadratic doesn't produce a near term zero that can be useful in data interpretation.

That tells me something more important than another exact number or hoping for a specific number:

We currently do not have a stable mathematical SPR floor.

And there's a fundamental reason for that that I believe we all glanced over.

The SPR draw is not purely an organic inventory process. DOE authorized a 172M barrel emergency SPR exchange which would be executed through multiple delivery contracts. That means weekly SPR movements can reflect scheduled deliveries rather than a smooth physical depletion curve as pointed out by u/gusgus0101 who helped provide some excellent information regarding that SPR draw.

So I'm retiring the ~302.7M floor thesis entirely.

For now, I think it is safe to say the SPR should be treated by us as purely a policy controlled source, not an inventory series that can reliably be extrapolated to a physical floor using any model since the process will always remain non-linear. We can always guess using models where it will possibly bottom, but it is not as relevant anymore as people here may think.

PADD 2 looks much more convincing

This part of the previous model has actually strengthened.

PADD 2:

July 17: 97.068M
July 24: 96.941M
July 31: 99.573M
August 7: 101.893M

Cushing:

July 24: 18.599M
July 31: 20.955M
August 7: 22.566M

So PADD 2 has now posted two consecutive significant builds, and Cushing is participating in this reversal.

Refitting the full post-peak PADD 2 series puts the quadratic trough roughly around 97–98M barrels, depending slightly on the exact starting date.

The actual low was 96.941M.

So I think it's reasonable to say:

PADD 2 probably did find a local floor in July.

That doesn't mean it can never return below 97M.

It means the one way depletion trend that existed through May and June appears to have broken.

PADD 3 is the biggest change in this entire report

My previous PADD 3 model projected:

~225–227M barrels around September.

That thesis is basically dead now since we completely dodged that number. Literally.

PADD 3 fell to:

230.555M on July 31

Then one week later:

245.235M

That's a:

+14.680 MILLION BARREL BUILD

in one week.

That's enormous in the world of oil from my understanding.

If I refit the post-April peak data including this week's build, the quadratic now puts its trough around:

~236M barrels around late July

with a R² around 0.92.

But the actual inventory already touched 230.555M, substantially below that fitted vertex.

That is another example of why I don't think we should interpret the quadratic literally or assume it has to go below the expected zones floors.

The important signal is not that "236M is the new physical floor."

The important signal is:

PADD 3 abruptly stopped behaving like a draining system that drains continuously.

And the trading data gave us a very good clue why.

This week's inventory build was largely a trade flow event

This might be the most important part of the report.

U.S. crude imports jumped from:

6.198 mb/d → 7.339 mb/d

Increase:

+1.140 mb/d

Meanwhile crude exports fell from:

3.685 mb/d → 3.058 mb/d

Decrease:

-0.627 mb/d

That means the U.S. crude balance received a net-import swing of roughly:

+1.767 million barrels per day.

Over seven days:

~12.4 million extra barrels.

Commercial inventories built 17.4M barrels.

So the change in imports + exports alone explains roughly 70% of the weekly commercial crude build before even considering pipeline flows, adjustments, refinery movements, etc.

And look specifically at PADD 3.

Gulf Coast crude imports went from:

1.081 mb/d → 1.879 mb/d

That's:

+799,000 barrels per day.

At the same time, national crude exports dropped by 627,000 b/d.

That is a huge change in the amount of crude staying inside the U.S. system.

So I don't think anymore that the correct interpretation is:

>

I think the more accurate interpretation is:

>

Instead of continuously draining USA commercial inventories by unloading it to countries in desperate need of oil, more barrels are entering the USA while fewer USA barrels are leaving the USA.

This changes my answer to: "What happens when the inventories stop absorbing the shortage?"

My previous framework was basically:

Missing supply will mean that the SPR/commercial inventory draws more to replace those missing barrels and that will allow refineries to be able to stay supplied.

And once inventories stop drawing:

Price must do the balancing to reduce consumption.

I still think that final conclusion is correct.

But I skipped an important intermediate step:

TRADE FLOWS CAN DO THE BALANCING FIRST.

The full chain I believe we are at now in order, respectively:

1. Supply shortage

2. SPR releases

3. Commercial inventory drawdowns

4. U.S. imports increase / U.S. exports decrease

5. Refinery runs eventually fall

6. Product inventories fall

Price increases lead to a destruction in demand or creates new supply routes and chains to decrease the deficit of oil missing from the global market.

And the August 12 report looks like we just moved further down that chain. We are at around Step number 4, and the USA is not even announcing export bans, yet exports are decreasing at ridiculous numbers on a weekly basis.

PADD 2 is not being drawn anymore.

PADD 3 just posted a massive buildup.

But that does not necessarily mean the worldwide shortage disappeared as Wright or Trump wants everyone to believe.

It may mean the United States is keeping more crude at home while releasing statements worth less than a pile of shit on Truth Social to convince everyone that everything is okay, and nothing is happening.

And if the U.S. keeps more barrels at home, those barrels are no longer available to Europe or Asia.

The shortage is most likely being transferred geographically now since the United States has reached its breaking point.

Eventually global prices have to rise enough to decide who gets the marginal barrel and paper prices are officially obsolete going forward. Since oil tankers from the United States reach Europe every 15 days, and reach Japan/Asia every 30 days; we should begin to see a completely different action in the price of oil going forward, especially if next week's EIA report proves everything being claimed in this post.

The export chart might now be more important than the inventory curves from now on, and we all know that the United States Administration is lying through their teeth about millions of barrels leaving the Hormuz daily when in reality, Kpler data says otherwise, and entirely contradicts these lies. It seems to me that the United States is trying to maintain calm to stock up on oil before the chaos hits the global markets.

Look at U.S. crude exports.

Back on April 24:

6.438 mb/d

Latest week:

3.058 mb/d

Obviously weekly exports are volatile and nobody should compare two isolated weeks as a structural change.

But the broader trend has clearly weakened.

The four-week average is now only:

3.391 mb/d.

And that creates an enormous domestic inventory effect.

If exports are running 1–2+ mb/d below the spring highs, that represents 7–14+ million barrels per week that can remain inside the U.S. instead.

Suddenly a PADD 3 build like this makes much more sense.

However, there's an important contradiction developing.

EIA's August STEO still expects strong international demand for U.S. crude exports and expects U.S. net crude imports to remain below historical averages.

So I don't assume 3.058 mb/d exports are the new permanent normal.

If global buyers begin bidding aggressively for U.S. crude again and exports return above 4M+ b/d while imports fall back toward ~6M b/d, the commercial builds could reverse extremely quickly.

That is probably the single biggest variable I'm watching now going forward.

Something else I got too simplistic in my previous post: demand

Previously I said we were "nowhere near prices high enough to destroy demand."

That's too simplistic.

EIA's four-week total products supplied is currently 2.1% below the same period last year, although distillate demand is up 1.9% and jet fuel demand is up 3.8%.

So there is already some softness in the aggregate demand numbers.

That does not prove full blown price driven demand destruction.

But demand is clearly not a constant number regardless of the price.

Refiners aren't giving us much room either

U.S. refineries processed about:

17.2 mb/d

during the latest week and operated around:

96% utilization.

So refiners are already running very hard.

If crude availability eventually forces refinery runs lower, the problem doesn't disappear.

It simply moves downstream.

Gasoline inventories are already around 6% below their five-year average.

Distillate inventories are around 12% below their five-year average.

So cutting refinery runs to save crude risks tightening gasoline/diesel/jet markets instead.

That's why I still think the ultimate balancing mechanism is price if the disruption lasts long enough.

What I think happens over the NEXT FOUR WEEKS

My base case from August 12 through roughly early September:

SPR

I think SPR continues drawing.

The latest four weekly draws average roughly 4.45M barrels/week.

If that pace simply continued for another four weeks, SPR would land around 281M barrels.

I don't expect the path to be that smooth, so I'd use something like:

~280–290M barrels by early September

as a rough range, do not take this as a modeled floor.

The important thing will be whether the 6.1M draw was a one week delivery lump or the beginning of another accelerated phase in drawing the SPR down.

PADD 2 / Cushing

My base case is that the late-July lows hold over the next month.

PADD 2 probably spends most of the next several weeks around the low-100M area, with builds and draws around it.

I would become concerned about renewed depletion if it falls back through ~97M again.

PADD 3

I definitely do not expect another +14.7M build every week.

That was an extraordinary move that I guarantee everyone here was shocked by.

Some reversal would be completely normal.

But after this build I think the probability that PADD 3 reaches my old 225–227M target within the next month has fallen dramatically in terms of the odds that it ever happens.

Something like 235–250M looks much more reasonable to me as a near term operating range unless the import/export balance flips again.

U.S. crude exports

This is now my favorite indicator.

My base case is roughly 3–4 mb/d over the next few weeks.

But here's the signal I would pay attention to:

Exports back above ~4 mb/d + imports falling + SPR still drawing + PADD 3 drawing again.

If those happen together, then we're right back into the shortage setup from my second post.

Except this time there are fewer inventory buffers left than there were in April.

And what about oil prices?

This is where the global picture still looks bullish even though this week's U.S. inventory report looks bearish.

EIA currently assumes Strait of Hormuz flows remain severely constrained through August, with flows only beginning to increase gradually during September.

They estimate global inventories fell around 4.2 mb/d in Q2 and forecast another 3.8 mb/d average draw during Q3.

Their current Brent forecast is roughly:

$85/barrel average in Q3.

So my base case over the next four weeks is not an immediate oil-price explosion.

It's probably:

High prices + high volatility + U.S. commercial inventory stabilization/rebuilding + continued SPR depletion.

Basically, the U.S. buys itself time by:

importing more barrels and exporting fewer barrels.

But that strategy cannot magically create oil barrels globally no matter what the orange buffoon in the white house keeps posting online from his phone.

If Hormuz flows improve during September as EIA expects, this system can gradually normalize and the pressure comes off.

But if September arrives and Hormuz is still severely constrained (obviously going to be constrained), while:

• SPR keeps falling
• imports can not remain elevated
• exports recover because foreign buyers begin to outbid buyers that are domestic
• PADD 2 turns back down
• PADD 3 turns back down
• refinery utilization remains high

then I think the argument from my second post becomes much stronger.

Because at that point you've exhausted literally everything you have to stop the price of oil from surging which is our:

strategic inventories + commercial inventories + trade flow adjustments.

And then the remaining adjustment mechanisms are basically:

higher prices, lower refinery throughput, or lower demand.

That's when things can become extremely nonlinear and lead to what Trump called "bedlam" not too long ago.

My updated conclusion

The August 12 report did not prove my original shortage thesis correct.

It actually falsified several of my exact floor predictions.

SPR ~302.7M: wrong.
PADD 3 ~225–227M: probably wrong, at least for this drawdown cycle.
PADD 2 ~97M: so far this one looks pretty good.

But I think this week's report revealed something more useful than the original floor models:

The U.S. appears to be transitioning from inventory depletion toward trade-flow balancing.

SPR is still being sacrificed, and its not a surprise to be honest. Trump only cares about his poll numbers and will do anything to survive the midterms which he will most likely still lose.

But commercial inventories rebuilt because imports surged and crude exports fell.

So from here, I'm watching four variables together:

SPR draws + PADD inventories + imports + exports.

The real danger signal isn't "PADD 3 reaches exactly 225M."

The danger signal is:

SPR stops providing barrels, PADD 2/3 resume drawing, imports cannot increase further, and exports cannot be suppressed enough to compensate.

If that happens while the global supply disruption remains unresolved, then there isn't another giant inventory cushion waiting behind them.

At that point, price has to do considerably more of the balancing.

The next 3–4 EIA reports are going to be much more interesting than I expected.

One caveat on the SPR graph: the ~281M vertex shown is the result of forcing a quadratic through the stock level. I would not treat it as a new SPR floor. The withdrawal rate model that produced my original ~302.7M thesis is now unstable after we had the 6.1M draw recently..

Previous posts:

Here are the previous posts that many of you may have read of or might need to read in order to understand this post:

https://www.reddit.com/r/oil/comments/1vjd3g3/i_fitted_the_spr_padd_2_and_padd_3_inventory/

https://www.reddit.com/r/oil/comments/1vjddu8/what_actually_happens_if_spr_padd_2_and_padd_3/

https://www.reddit.com/r/oil/comments/1vktacm/spr_update_august_10/

Meme of the Day:

Well anyone who saw my previous posts knows that the model just failed its first major test horribly.

The latest SPR data released Monday showed:

Previous: 304.809M barrels

Latest: ~298.7M barrels

Weekly draw: ~6.1M barrels

That takes the SPR below 300M barrels for the first time since 1983.

Pre-war SPR was roughly:

~415.4M barrels

So the total decline is now approximately:

~116.7M barrels

My original quadratic fit had the withdrawal rate approaching zero around August 11–12 and projected a modeled bottom of roughly:

~302.7M barrels

I specifically said the major test would be whether the next draw collapsed toward ~1M barrels, with SPR landing around 303–304M.

Instead, we got the exact opposite:

~6.1M barrels withdrawn in one week.

The model expected roughly ~1M, so it missed the weekly draw by about 5M barrels, and the SPR has already fallen roughly 4M barrels below the projected ~302.7M floor.

So there really isn't any ambiguity here:

The original SPR quadratic/flattening model is invalidated.

Rather than continuing to decelerate, the withdrawal rate accelerated sharply again:

• July 17: 311.447M → -5.057M
• July 24: 307.650M → -3.797M
• July 31: 304.809M → -2.841M
• August 7: ~298.7M → ~-6.1M

That last datapoint completely breaks the smooth deceleration pattern the previous fit was capturing.

I'm not going to immediately fit another quadratic and pretend there's a new reliable bottom based on one surprise datapoint. At this point, I think the better approach is to watch the next few weekly releases and see whether the 6.1M draw was an outlier or whether withdrawals have genuinely reaccelerated.

The important takeaway is that ~302.7M was a statistical trend floor, not an operational floor — and the market just blew straight through it.

If large withdrawals continue, the eventual SPR bottom is clearly going to be substantially lower than my original estimate.

The DOE did authorize a 172M-barrel emergency exchange. Using the roughly 415.4M starting inventory, that would mean the operational floor could be around 243.3 million barrels, but it does not seem to be the case since many people on this sub-reddit have pointed towards credible experts claiming that it was very close to 300 million. The exponential decay model showed that it would be around 284 million barrels. I'm not too sure where we are going to go from here, but we definitely need more data before concluding anything. Remember this is all highly SPECULATIVE and nothing is guaranteed.

Previous posts:

https://www.reddit.com/r/oil/comments/1vjddu8/what_actually_happens_if_spr_padd_2_and_padd_3/

https://www.reddit.com/r/oil/comments/1vjfddb/update_i_tested_the_sprpadd2padd3_inventory/

I posted recently about fitting the current SPR, PADD 2 and PADD 3 crude inventory drawdowns with quadratic curves to estimate where the trends mathematically bottom.

Someone in the comments suggested I try an exponential decay model instead:

y = ab^t + c

where c represents an asymptotic inventory floor.

I thought that was a good point because a quadratic assumes the decline eventually reaches a finite turning point and then reverses, whereas an exponential decay model assumes inventories progressively flatten toward a floor without necessarily turning upward.

So I fitted both.

The results were actually more interesting than I expected.

SPR

My original quadratic model gave:

Quadratic floor: ~302.7M barrels

with the drawdown rate reaching approximately zero around mid-August.

The exponential model is much less supportive of 302–303M being the actual long-term floor.

Depending on where I start the exponential fit during the recent deceleration phase, the estimated asymptotic floor (c) moves quite a bit:

• May 15 start → ~270.9M
• May 22 → ~277.7M
• May 29 → ~284.8M
• June 5 → ~289.4M
• June 12 → ~288.4M
• June 19 → ~278.1M

That tells me the long-run SPR floor is currently poorly identified by an exponential fit.

There simply hasn't been enough sustained flattening yet.

However, the interesting part is that the near-term forecasts are much more similar.

The exponential fits generally put the next SPR observation around roughly:

~300.6–302.7M

while my quadratic was expecting approximately:

~303.8M

So the next EIA reports should be useful for distinguishing the two.

If SPR inventories suddenly flatten around 303–304M, that would support the quadratic flattening thesis.

If they keep declining through 301M, 300M, etc., the exponential interpretation becomes more plausible.

PADD 2 — Midwest

This one gave the strongest agreement between the two approaches.

My quadratic estimate was roughly:

~97.25M barrels

The exponential model gives an asymptotic floor around:

~95.7M barrels

And the actual inventory already touched:

96.941M

before building again.

So we have:

Quadratic: ~97.25M
Exponential: ~95.7M
Observed low: 96.94M

That's remarkably close considering the models have completely different functional forms.

I would therefore broaden my original PADD 2 floor slightly to roughly:

~95.5–97.5M barrels

PADD 2 remains the part of the analysis I'm most confident has already approached or reached a meaningful short-term floor.

Cushing bouncing from 18.599M to 20.955M at roughly the same time also makes the recent Midwest stabilization worth watching.

PADD 3 — Gulf Coast

This is where the comparison gets really interesting.

My quadratic model gave:

~225.5M barrels

with a modeled minimum around September.

The exponential model, however, gives an asymptotic (c) around:

~200M barrels

That sounds like a massive disagreement — and it is.

But here's the important part:

The historical fit quality is almost identical.

Quadratic R²: ~0.966

Exponential R²: ~0.964

So two models can explain the existing PADD 3 data almost equally well while producing completely different forecasts.

The quadratic says inventories should decelerate and bottom around 225–227M.

The exponential says inventories could simply pass through that level while continuing to decline more gradually.

Under the exponential fit, the rough path is approximately:

• Aug 7: 229.1M
• Aug 14: 227.4M
• Aug 21: 225.9M
• Aug 28: 224.5M
• Sep 4: 223.1M
• Sep 11: 221.9M
• Sep 18: 220.7M
• Sep 25: 219.5M

So 225–227M becomes a very useful test zone.

If PADD 3 reaches that area and then begins flattening/building, the quadratic interpretation gets much stronger.

If inventories simply blow through 225M into the low-220s, the exponential model starts looking much better.

I would NOT interpret the exponential (c) of ~200M as a prediction that PADD 3 is definitely going to 200M.

The opposite, actually.

The fact that the estimated long-term floor can move so far while maintaining almost the same historical R² demonstrates how uncertain extrapolation is right now.

TL;DR

After someone suggested trying an exponential decay model, I compared it against my original quadratic fits.

SPR

Quadratic: ~302.7M

Exponential: long-term floor is unstable and much lower depending on fitting window.

Near-term difference between the models is much smaller, so the next few EIA reports should be very informative.

PADD 2

Quadratic: ~97.25M

Exponential: ~95.7M

Actual recent low: 96.94M

This is the strongest agreement between the models and supports a floor zone around 95.5–97.5M.

PADD 3

Quadratic: ~225.5M

Exponential: ~200M asymptote

Despite the huge difference in extrapolated floors, both models have almost identical historical R².

That's probably the most interesting result.

It means the current data fit both stories almost equally well, and the next several weeks will determine whether PADD 3 actually flattens around 225–227M or simply passes through it.

So the commenter who suggested the exponential model actually gave me a useful way to stress-test the original thesis.

Rather than making me more confident in every quadratic floor, it made the conclusions more nuanced:

PADD 2 looks robust.

SPR flattening may be real, but the exact floor isn't established yet.

PADD 3 is basically a live test between two competing curve shapes.

I'll probably update this again after a few more EIA reports.