Oil Prices Fluctuate Amid Geopolitical Tensions and Economic Data
Crude Shows Resilience as Tariff Concerns Ease
March WTI crude oil (CLH25) ended Friday up +0.04 (+0.05%), while March RBOB gasoline (RBH25) closed down -0.0188 (-0.90%). Crude and gasoline prices hit two-week lows on Friday, although crude managed to close slightly higher. A decline in the dollar index (DXY00) to a five-week low led to short covering in crude. Furthermore, indications that President Trump might soften his stance on tariffs could alleviate fears of a trade war, benefitting overall economic growth and energy demand.
Geopolitical Context and Market Reactions
Crude prices initially dipped on Friday following remarks from Russian President Putin, who expressed willingness to discuss Ukraine and oil prices with President Trump. This development reduced concerns regarding potential new sanctions on Russian crude exports. Additionally, Trump’s comments to Fox News on Thursday, where he indicated a preference to avoid tariffs with China, offered further reassurance.
Positive Manufacturing Data Boosts Demand
Recent economic indicators revealed better-than-expected manufacturing activity in both the US and Eurozone, contributing to expectations for increased energy demand. The US January S&P manufacturing PMI rose by +0.7 to 50.1, surpassing estimates of 49.8 and marking the fastest growth in seven months. Similarly, the Eurozone’s PMI increased by +1.0 to 46.1, exceeding predictions of 45.4.
Concerns Over Crude Oil Storage
Despite some positive signals, an increase in crude oil held worldwide on tankers remains a bearish factor. Vortexa reported a +2.5% weekly rise in crude oil stored on stationary tankers, reaching 54.23 million barrels as of January 17.
US Sanctions Impact Global Supply
A previous increase in crude prices stems from new US sanctions imposed on Russia’s oil industry on January 10, which may restrict global oil supplies. Sanctions specifically targeted Gazprom Neft and Surgutneftgas, which accounted for roughly 970,000 barrels per day (bpd) of Russian crude exported in the first ten months of 2024. Moreover, Trump’s warning about potential additional sanctions on Russia if negotiations regarding Ukraine stall adds another layer of tension.
Declining Russian Exports Support Prices
Data from Bloomberg revealed a weekly decrease in Russian crude oil exports, which fell by -260,000 bpd to 2.75 million bpd for the week ending January 19. This reduction in exports bolsters crude oil prices as sanctions and geopolitical issues limit supply.
OPEC+ Actions Affect Market Forecasts
Last month, markets received support from OPEC+’s decision to delay a planned production increase of +180,000 bpd from January to April. There’s been a revised timeline on restoring output cuts, with the full increase of 2.2 million bpd now postponed until September 2026.
China’s Crude Demand Weakens
Crude oil demand in China, the world’s largest importer, has shown signs of weakness. Customs data indicates that China’s crude imports decreased by -1.9% year-over-year to 553 million metric tons in 2024, contributing to bearish pressure on oil prices.
US Inventories Show Mixed Signals
The latest weekly EIA report indicated that as of January 17, US crude oil inventories were -6.4% below the seasonal five-year average. Gasoline inventories were down by -0.7%, and distillate inventories fell by -5.7%. US crude production remained unchanged from the previous week at 13.477 million bpd, just below the record high of 13.631 million bpd from December 6.
Declining Active Oil Rigs
Baker Hughes disclosed that active US oil rigs decreased by -6 to a three-year low of 472 as of January 24. The number of oil rigs has significantly dropped from the 4.5-year high of 627 rigs reached 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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
