Crude Oil and Gasoline Prices Decline Amid Economic Concerns

On Friday, May WTI crude oil (CLK25) closed down -0.56 (-0.80%), while May RBOB gasoline (RBK25) fell -0.0110 (-0.49%). These declines follow growing concerns that U.S. tariffs and corresponding retaliatory measures could stifle economic growth and reduce energy demand. Additionally, disappointing U.S. economic data and a slump in equity markets contributed to a risk-off sentiment across asset markets. Notably, a weaker U.S. dollar helped limit the losses in crude prices.

Weaker Economic Indicators Impact Energy Demand

Recent economic reports from the U.S. revealed below-expected results, worsening the outlook for energy demand and crude prices. Personal spending for February increased by +0.4% month-over-month, falling short of the anticipated +0.5%. Furthermore, the University of Michigan’s consumer sentiment index for March was revised down by -0.9, reaching a 2-1/3 year low of 57.0, which was weaker than the forecasted no-change figure of 57.9.

Geopolitical Tensions and Sanctions Support Crude Prices

Crude oil prices have found some support due to sanctions implemented by the U.S. Treasury Department’s Office of Foreign Assets Control against a China-based oil refinery and 19 related entities connected to shipping Iranian crude oil. These sanctions aim to curb Iranian crude exports after President Trump’s warning to Iran’s Supreme Leader regarding a deadline for a new nuclear deal. Analysts from Rystad Energy A/S suggested that a maximum-pressure campaign could potentially remove as much as 1.5 million barrels per day (bpd) of Iranian crude from the global market, presenting a bullish factor for crude prices.

Ongoing Middle East tensions also play a role in the pricing dynamics. Israel’s recent airstrikes against Gaza have ended a two-month ceasefire with Hamas, and Israel’s Prime Minister Netanyahu vowed to escalate military efforts to address the hostage situation. In further developments, the U.S. has initiated strikes on Yemen’s Houthi rebels, with Defense Secretary Hegseth indicating that these actions will continue “unrelentingly.”

Russian Oil Exports and OPEC+ Actions Weigh on Prices

However, increased Russian oil exports are applying downward pressure on crude prices. Recent data from Bloomberg shows that Russian oil products exports reached a yearly high of 2.5 million bpd in February, according to analytics firm Vortexa.

On March 3, OPEC+ announced plans to gradually restart some halted crude output starting in April, adding 138,000 bpd to the global supply. This decision marks the initial step in a series of planned monthly production increases to reverse the two-year production cut, which aims to gradually restore a total of 2.2 million bpd. Whereas earlier plans indicated a full restoration by late 2025, the reintroduction of production will not be completed until September 2026. Consequently, OPEC’s February crude production saw an increase of +320,000 bpd to reach a 14-month high of 27.35 million bpd.

U.S. Sanctions on Russia’s Oil Industry and Demand Concerns

In a supportive action for crude oil prices, the U.S. announced new sanctions on Russia’s oil industry on January 10, targeting companies like Gazprom Neft and Surgutneftgas, which together exported approximately 970,000 bpd in the first ten months of 2024. This accounted for about 30% of Russia’s tanker flow, as reported by Bloomberg. Furthermore, recent data suggests that Russian crude exports fell by -530,000 bpd week-over-week to 3.03 million bpd as of March 23, driven by these sanctions.

Contrarily, China, the world’s largest crude importer, is witnessing a decline in crude oil demand. Data from Chinese customs indicated that imports fell -1.9% year-over-year to 553 million metric tons in 2024.

Global Oil Supply Trends

An increase in crude oil stocks worldwide is contributing to a bearish outlook for prices. Vortexa indicated that crude oil held on tankers sitting idle for over seven days rose by +7.6% week-over-week to 67.43 million barrels in the week ending March 21.

In the latest EIA report released on Wednesday, several findings were noted: (1) U.S. crude oil inventories as of March 21 were -5.3% below the seasonal five-year average; (2) gasoline inventories were +2.3% above the seasonal five-year average; and (3) distillate inventories were -6.8% below the seasonal average. U.S. crude oil production remained steady at 13.574 million bpd as of March 21, slightly below the historical high of 13.631 million bpd reached in early December.

U.S. Active Oil Rigs Trend

Lastly, Baker Hughes reported a decrease in active U.S. oil rigs, with a net loss of two rigs to a total of 484 during the week ending March 28. This figure remains moderately above the three-year low of 472 recorded on January 24. Over the past two years, the number of U.S. oil rigs has declined from the 4-1/2 year high of 627 rigs 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 are solely for informational purposes. For more information, please view the Barchart Disclosure Policy here.

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