Crude Oil Prices Decline Amid Economic and Political Pressures
Market Response to Tariffs and Sanctions Impacting Energy Demand
March WTI crude oil (CLH25) closed down -0.39 (-0.51%) on Wednesday, while March RBOB gasoline (RBH25) fell -0.0286 (-1.35%).
Energy prices settled lower on Wednesday, with gasoline hitting a 1-1/2 week low. A stronger dollar contributed to this downturn. Additionally, President Trump’s threat of a 10% tariff on Chinese goods raises concerns of a potential trade war, which could dampen global growth and reduce energy demand. However, losses in crude were somewhat offset after Trump indicated he would impose further sanctions on Russia if President Putin does not engage in discussions regarding Ukraine.
Pressure on crude prices intensified as Trump indicated he is contemplating tariffs on all Chinese goods, aiming to address the flow of fentanyl from China.
A monthly report from the Bundesbank revealed weak energy demand in Germany, Europe’s largest economy, which is bearish for crude prices. The report stated that “In the first quarter of 2025, the German economy is unlikely to emerge from its long period of stagnation.”
Another bearish sign came from an increase in crude oil stored globally on tankers. Vortexa reported that crude oil on tankers, which had been stationary for over a week, rose by +2.5% week-over-week to 54.23 million barrels as of January 17.
Despite the declines, crude prices received support following new U.S. sanctions imposed on the Russian oil industry on January 10, which could restrict global oil supply. These sanctions targeted Gazprom Neft and Surgutneftgas, who exported about 970,000 barrels per day (bpd) of Russian crude during the first ten months of 2024, representing approximately 30% of Russia’s tanker flow, as per Bloomberg data.
Data from Bloomberg’s weekly vessel tracking suggested that Russian crude exports dropped by -260,000 bpd to 2.75 million bpd for the week ending January 19, adding support to crude oil prices.
The prospective new sanctions on crude exports from Iran and Russia could further tighten global oil supplies, which would be bullish for prices. Mike Walz, President Trump’s national security adviser, committed to a strategy of “maximum pressure” on Iran. Newly appointed Treasury Secretary Bessent also expressed strong support for intensifying sanctions, particularly against Russian oil companies.
Crude received another boost last month when OPEC+ decided to delay a planned increase in crude production. The organization postponed a planned increase of +180,000 bpd from January to April and indicated a more measured approach to unwinding output cuts. Additionally, the UAE announced a delay in its target for a 300,000 bpd increase from January to April. OPEC+ previously agreed to restore 2.2 million bpd of output in stages between January and late 2025, but this has now been pushed back until September 2026. In December, OPEC’s crude production fell -120,000 bpd to 27.05 million bpd.
In contrast, weakening crude oil demand in China has raised bearish concerns. According to Chinese customs data, crude imports have declined by -1.9% year-over-year, totaling 553 million metric tons in 2024. As the world’s largest crude importer, China’s reduced demand significantly impacts oil prices.
Looking ahead, analysts forecast that Thursday’s weekly EIA report will show a decrease in crude inventories by -400,000 barrels, while gasoline supplies might increase by +2.185 million barrels.
The previous EIA report indicated that as of January 10, U.S. crude oil inventories were -6.3% below the seasonal 5-year average, with gasoline inventories down -0.9% and distillate inventories -4.2% below their respective averages. U.S. crude production fell by -0.6% week-over-week to 13.481 million bpd, just shy of the record high of 13.631 million bpd reached the week of December 6.
Furthermore, Baker Hughes reported a drop in active U.S. oil rigs, which fell by -2 to 478 rigs for the week ending January 17, remaining slightly above the low of 477 rigs recorded on November 29. Over the past two years, the number of U.S. oil rigs has decreased from a peak of 627 rigs reached in December 2022.
On the date of publication, Rich Asplund did not hold direct or indirect positions in any of the securities mentioned in this article. All information and data in this article are solely for informational purposes. For more information, please view the Barchart Disclosure Policy .
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
