Oil Prices Decline Amid Economic Concerns and Geopolitical Tensions

May WTI crude oil (CLK25) is trading down -0.42 (-0.60%), with May RBOB gasoline (RBK25) also slipping -0.0071 (-0.31%).

Current Market Influences

Today, both crude oil and gasoline prices are lower, primarily due to fears that US tariffs may trigger a global trade war, potentially impacting economic growth and energy demand. Additionally, disappointing US economic indicators regarding personal spending and consumer sentiment have negatively affected crude demand and pricing. The downturn in equity markets has encouraged a risk-off sentiment across asset markets, placing further downward pressure on crude prices. However, a weaker dollar has helped to limit these losses.

Weaker Economic Reports

Recent US economic reports presented weaker results than expected, impacting energy demand. Personal spending in February increased by +0.4% month-over-month, slightly below the anticipated +0.5%. Meanwhile, the University of Michigan’s consumer sentiment index for March was revised downward by -0.9, reaching a 57.0, its lowest level in over two years, and falling short of the expected no change at 57.9.

Supportive Factors for Crude Prices

Crude oil continues to receive some support from geopolitical tensions. Recently, the US Treasury Department’s Office of Foreign Assets Control sanctioned a China-based oil refinery along with 19 entities and vessels involved in transporting Iranian crude oil. President Trump’s message to Iran’s Supreme Leader Ali Khamenei included a two-month deadline for negotiating a new nuclear deal. Rystad Energy A/S estimates that a maximum-pressure campaign could potentially eliminate up to 1.5 million barrels per day (bpd) of Iranian crude exports from the market, showcasing a bullish factor for crude prices.

Middle East Tensions and Military Actions

Mounting tensions in the Middle East, particularly Israel’s recent military actions, could disrupt crude supplies from the region. Following a series of airstrikes across Gaza, Israeli Prime Minister Netanyahu vowed to adopt a stronger military position to free hostages and disarm Hamas. Moreover, Israel has deployed troops in Syria as part of a new defense strategy. Concurrently, the US has initiated strikes against Yemen’s Houthi rebels and has declared these actions will be “unrelenting” until attacks on vessels in the Red Sea cease.

Russian Export Data Impacts Prices

Bloomberg’s data from analytics firm Vortexa indicates a rise in Russian oil exports, which has negatively influenced crude pricing. In February, Russian oil product exports hit a one-year high of 2.5 million bpd.

Impacts of OPEC+ Decisions

Crude prices faced additional challenges following OPEC+ announcements on March 3 regarding the restart of some halted crude production in April. An increase of 138,000 bpd to global supplies is planned, as part of a strategy to reverse a two-year production cut, which aims for a total incremental restoration of 2.2 million bpd. Initially, OPEC had expected to restore production by late 2025; however, full restoration may now extend until September 2026. OPEC’s February crude production increased by +320,000 bpd to the highest level in 14 months, totaling 27.35 million bpd.

US Sanctions and Their Effects

The US imposed new sanctions on Russia’s oil industry earlier this year, which could restrict global oil supplies. These sanctions impacted Gazprom Neft and Surgutneftgas, responsible for approximately 970,000 bpd of Russian crude in the first ten months of 2024. These firms represented about 30% of Russia’s tanker flow, according to Bloomberg. The week ending March 23 saw a week-over-week decline of -530,000 bpd, lowering Russian crude exports to 3.03 million bpd.

China’s Demand and Tanker Stockpiling

China’s weakening crude oil demand poses a bearish factor for prices. Chinese customs data reveals that crude imports dropped by -1.9% year-over-year, totaling 553 million metric tons in 2024. Additionally, a rise in crude stored on tankers has become concerning; Vortexa reported an increase of +7.6% week-over-week in stationary tankers, reaching 67.43 million barrels as of March 21.

Inventories, Production, and Rig Count

According to the latest EIA report, US crude oil inventories as of March 21 were -5.3% below the five-year seasonal average. In contrast, gasoline inventories were +2.3% above the average, while distillate inventories were -6.8% below it. US crude oil production remains steady at 13.574 million bpd, just below the record high of 13.631 million bpd from December 6. Meanwhile, Baker Hughes reported a slight decrease in active US oil rigs, declining -1 rig to 486, remaining moderately above the three-year low, which was last seen at 472 rigs on January 24. This reflects a broader trend as the number of US oil rigs has decreased from a peak of 627 rigs recorded in December 2022.

On the date of publication, Rich Asplund did not hold positions, either directly or indirectly, 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.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.