Oil Prices Climb as Geopolitical Tensions and Sanctions Shape Market
June WTI crude oil (CLM25) is currently up +0.70 (+1.17%), while June RBOB gasoline (RBM25) has increased by +0.0131 (+0.63%).
Crude and Gasoline Prices Reach New Heights
Both crude oil and gasoline prices have continued to rise, adding to the significant gains from Thursday and reaching 1-1/2 week highs. A notable weakness in the dollar is contributing positively to energy prices. Furthermore, optimism regarding the upcoming trade discussions with China is driving prices higher in light of President Trump’s trade deal announcement with the UK on Thursday. Additionally, the UK is set to sanction 100 oil tankers linked to a shadow fleet aiding Russia, potentially reducing global crude supplies.
US Sanctions Could Impact Global Oil Supplies
Further US sanctions on Russian crude oil are anticipated to restrict global supply and support crude prices. Senator Graham noted last Thursday that 72 senators support a bill to implement significant new sanctions on Russia, including a 500% tariff on imports from nations purchasing Russian crude and petroleum products, as well as prohibitions on US citizens buying Russian sovereign debt.
Geopolitical Factors Affecting Prices
Conversely, easing geopolitical tensions in the Middle East are likely to place downward pressure on crude prices. President Trump indicated that the US would cease its bombing campaign against Houthi rebels in Yemen following a ceasefire facilitated by Oman. Vice President Vance also mentioned that a potential nuclear deal with Iran could reintegrate the country into the global economy.
OPEC+ Production Increases Initiate Market Concerns
Earlier this week, crude prices dipped to a 1-month low due to fears of a global oil surplus. OPEC+ announced an increase in crude production by 411,000 bpd in June. Saudi Arabia hinted at further production increases, aiming to alleviate high prices and address overproduction by OPEC+ members like Kazakhstan and Iraq. As OPEC+ resumes production cuts that were in place for two years, the overall target to restore production to 2.2 million bpd is now projected for September 2026, rather than late 2025.
Negotiations with Iran and Global Oil Supply
The US and Iran have reported progress in discussions regarding Iran’s nuclear program, with meetings scheduled in Europe this week. If an agreement is reached, it could lead to the lifting of export restrictions on Iranian crude oil, adding to global supply and potentially lowering prices.
Global Crude Storage Trends and US Inventories
A decline in crude oil stored on tankers is seen as bullish for prices. Vortexa reported a 14% weekly decrease in crude oil on tankers that had been stationary for over seven days, amounting to 79.84 million bbl for the week ending May 2.
On January 10, the US imposed new sanctions on Russia’s oil sector, targeting Gazprom Neft and Surgutneftgas. These companies accounted for approximately 30% of Russian crude tanker flow, exporting about 970,000 bpd in the first ten months of 2024. Moreover, Russian oil product exports hit a five-month high of 3.45 million bpd in March, according to Vortexa data, although weekly reports indicated a reduction in Russian crude exports to 3.20 million bpd by May 4.
US Oil Production and Rig Counts
According to Wednesday’s EIA report, US crude oil inventories on May 2 were 7.3% below the seasonal five-year average, with gasoline and distillate inventories also below their respective averages. Weekly crude oil production fell by 0.7% to 13.367 million bpd, still close to the record set in December 2022.
Baker Hughes reported a slight decline in active US oil rigs, which fell by four to a total of 479 rigs last week. This remains above the three-and-a-quarter-year low of 472 rigs from January 24. The number of US oil rigs has drastically decreased from the five-year high of 627 rigs recorded in December 2022.
On the date of publication,
Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data herein are for informational purposes only. For more information, please view the Barchart Disclosure Policy.
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