Crude Oil Prices Climb Amid Dollar Decline and Geopolitical Tensions

June WTI crude oil (CLM25) rose by +0.19 (+0.30%) today, while June RBOB gasoline (RBM25) saw a decline of -0.00082 (-0.38%).

Market Trends and Economic Indicators

Crude oil prices have rebounded from early losses, driven by a decline in the dollar index (DXY00) to a one-week low. Additionally, uncertainties surrounding a nuclear deal between Iran and the U.S. are providing support for crude prices.

Impact of Economic Events

The initial drop in crude prices was influenced by Moody’s recent downgrade of U.S. debt, which triggered a risk-off sentiment throughout asset markets. Furthermore, ongoing discussions between President Trump and Russian President Putin may ease geopolitical risks and contribute to a ceasefire in Ukraine, which also puts downward pressure on crude prices.

Geopolitical Tensions Support Prices

Concerns over the possibility of a nuclear agreement between Iran and the U.S. are fostering support for oil prices. Iranian Supreme Leader Ali Khamenei accused President Trump of dishonesty, while Trump warned that Iran would face “something bad” if it does not quickly accept the U.S. proposal regarding its nuclear program.

Regulatory Actions and Supply Dynamics

Recent sanctions from the U.S. State Department against an international network that facilitated Iranian oil shipments to China are tightening global oil supplies. The sanctions targeted Sepehr Energy Jahan Nama Pars for allegedly using oil revenue to fund military developments.

Gasoline Demand Factors

The outlook for increased U.S. gasoline demand further reinforces crude prices. The American Automobile Association projects that 39.4 million Americans will travel by car during the upcoming Memorial Day weekend, a 3.1% increase from last year, driven in part by lower gasoline prices—50 cents per gallon cheaper than last year.

Concerns Over Oil Glut

Despite some positive indicators for crude, worries about a global oil glut loom large. OPEC+ recently agreed to increase crude production by 411,000 barrels per day (bpd) in June. Saudi Arabia has hinted at additional production increases to pressure overproducing members, signaling a strategy to lower oil prices.

Tankers and Global Supply Trends

The increase in crude oil stored on tankers remains a bearish factor for prices. Vortexa reported a 3.1% week-over-week rise, bringing the total stationary crude oil on tankers to 90.97 million barrels as of May 16.

U.S. Sanctions on Russia

In a contrasting development, recent U.S. sanctions on Russia’s oil industry could limit global oil supplies. Data shows that Russian oil product exports reached a five-month high of 3.45 million bpd in March, with crude exports rising by 140,000 bpd week-over-week to 3.48 million bpd as of May 11.

Inventory Levels and Production Rates

According to the EIA’s report last Wednesday, U.S. crude inventories as of May 9 were 6.5% below the five-year seasonal average. Gasoline and distillate inventories were also below seasonal averages. U.S. crude oil production slightly increased by 0.1% week-over-week, totaling 13.387 million bpd, just shy of the record high.

Rig Count Trends

Data from Baker Hughes indicates that the number of active U.S. oil rigs fell by one to 473 in the week ending May 16, remaining just above the 3.25-year low. This number has declined from a 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 in this article is solely for informational purposes. For more information, please view the Barchart Disclosure Policy here.

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