Crude Oil Prices Rise Amid Sanctions and Market Concerns

April WTI crude oil (CLJ25) closed Friday at +0.63 (+0.95%), while April RBOB gasoline (RBJ25) ended the day up +0.156 (+0.73%). Overall, crude oil prices saw a moderate increase, buoyed by a weaker dollar. This shift was influenced by tighter U.S. sanctions on Russia, complicating the country’s ability to finance its crude oil trade and potentially tightening global supplies. Support for oil prices also stemmed from U.S. sanctions on Iran’s oil minister, along with indications that Russian support for a ceasefire remains lukewarm, suggesting that the ongoing conflict and sanctions will continue.

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However, bearish factors persist. Market concerns about U.S. tariffs and retaliatory measures dampen global growth expectations and could reduce energy demand. Additionally, the University of Michigan’s March consumer sentiment index dropped to a 2-1/3 year low of 57.9, signaling potential reductions in energy demand and placing downward pressure on crude prices.

Certainly, crude prices received a boost when the U.S. allowed a license to expire that permitted energy payments to Russian banks, tightening sanctions in the hope of compelling Russia to negotiate a ceasefire in Ukraine. However, the bearish sentiment was reinforced when the International Energy Agency (IEA) cut its 2025 global crude consumption forecast by about 100,000 barrels per day (bpd), projecting a global surplus of 600,000 bpd for this year, which may widen by another 400,000 bpd due to OPEC+’s announcement to resume some curtailed crude output.

In a supportive tone, crude prices were reinforced last Thursday when U.S. Energy Secretary Wright stated plans to seek up to $20 billion to replenish the Strategic Petroleum Reserve, currently at 395 million barrels but with a maximum capacity of 700 million barrels.

Meanwhile, increasing Russian oil exports presented a challenge to crude prices. Data from Bloomberg, compiled by analytics firm Vortexa, indicated that Russia’s February oil product exports hit a one-year high at 2.5 million bpd. This trend was compounded by OPEC+’s intention to restart some halted crude output in April, which would add 138,000 bpd to global supplies. This marks the commencement of a series of monthly increases aimed at reversing a two-year-long production cut, ultimately aiming to restore a total of 2.2 million bpd. Initially, OPEC had planned a complete restoration of production between January and late 2025; that timetable has extended full restoration until September 2026, with February production rising by 320,000 bpd to reach a 14-month high of 27.35 million bpd.

On a positive note, the U.S. imposed new sanctions on Russia’s oil industry, targeting companies that exported approximately 970,000 bpd of Russian crude in the previous ten months. This was aimed at curtailing global oil supplies. However, as per Bloomberg’s vessel-tracking data, Russian crude exports have fallen by 45,000 bpd to 3.48 million bpd during the week ending March 9.

China, the world’s largest crude importer, is experiencing weak oil demand that could further lower prices. According to customs data, China’s 2024 crude imports fell by 1.9% year-over-year to 553 million metric tons.

Another bearish signal is the rising amount of crude oil being stored globally on tankers. Vortexa reported a 4.9% week-over-week increase to 84.15 million barrels for oil stored on stationary tankers as of the week ending March 7.

In the latest EIA report dated March 7, U.S. crude oil inventories were reported as 5.1% below the seasonal five-year average, while gasoline inventories were 1.3% above the seasonal average and distillate inventories were down by 4.8%. Additionally, U.S. crude oil production slightly rose to 13.575 million bpd during the week ending March 7, remaining below the peak of 13.631 million bpd recorded in December.

Baker Hughes noted an increase of one active U.S. oil rig to 487 for the week ending March 14, slightly above the three-year low of 472 rigs recorded on January 24. The count of active U.S. oil rigs has decreased over the past two years from the high of 627 rigs seen in December 2022.

On the date of publication,
Rich Asplund
did not hold (either directly or indirectly) any positions in the securities mentioned in this article. All information and data in this article are intended solely for informational purposes. For more information, please view the Barchart Disclosure Policy
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The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.