Crude Oil Prices Dip Amid Trade Tensions and Economic Concerns
Market Reaction to Trade War Worries
January WTI crude oil (CLF25) closed down -0.67 (-0.95%) on Friday, while January RBOB gasoline (RBF25) increased by +1.84 (+0.95%).
This decline in crude oil prices was fueled by fears of a potential trade war between the US and the EU. Incoming President Trump announced he would impose tariffs on the EU unless it significantly increases its purchases of US oil and gas. Additionally, concerns over a weaker US economic outlook were heightened as Congress struggled to pass a stop-gap funding bill ahead of Friday’s midnight deadline, raising the specter of a prolonged government shutdown.
Supporting Factors for Oil Prices
Despite the drop, several factors provided support for oil prices. These included a weakening dollar and a more dovish perspective on Federal Reserve policy following a disappointing US PCE price index report. Furthermore, Transneft’s announcement that it halted oil pipeline transfers to Belarus and Europe due to technical issues added to the bullish sentiment.
Earlier in the week, Kazakhstan reaffirmed its commitment to OPEC+ quotas, shelving plans to increase oil production by 190,000 bpd in 2024. This commitment helped boost confidence in price stability.
Global Supply Concerns
Another driving force behind higher oil prices is the anticipated impact of new sanctions on Iranian and Russian crude exports. Mike Walz, President Trump’s choice for national security adviser, promised a return to “maximum pressure” on Iran, while the Biden administration is considering more stringent sanctions on Russian crude oil.
Additionally, a recent report from Vortexa indicated a significant drop in crude oil held on tankers, down -9.9% week-over-week to 65.28 million barrels for the week ending December 13. This decline signals tighter supply in the market.
OPEC+ also played a role in bolstering prices by delaying a planned increase in crude production by 180,000 bpd from January to April. The United Arab Emirates announced a similar delay for its production target, now set for April instead of January. Collectively, OPEC+ has changed its output restoration plan, pushing back a total of 2.2 million bpd to September 2026.
Geopolitical Tensions Affecting the Market
The ongoing conflict in Ukraine has further supported crude prices. Russia’s recent military actions, including a hypersonic missile launch into Dnipro, escalated tensions, with President Putin indicating potential strikes against “decision-making centers” in Kyiv.
Demand Dynamics and Market Bright Spots
On the demand side, China’s oil consumption has weakened, posing a challenge to oil prices. According to Bloomberg data, China’s November apparent oil demand dropped by -2.14% year-over-year to 14.013 million bpd, and January-November demand was down -3.26% year-over-year to 13.996 million bpd.
However, a reduction in Russian crude exports has provided some support. Bloomberg’s vessel-tracking data revealed a decrease of -170,000 bpd in Russian exports, falling to 2.97 million bpd during the week ending December 15.
Inventory Status and Production Updates
Wednesday’s EIA report highlighted several key statistics: US crude oil inventories as of December 13 were -5.9% below the seasonal 5-year average, gasoline inventories were -3.3% lower, and distillate inventories were down -7.0% below the 5-year seasonal average. During the same week, US crude oil production decreased by -0.2% week-over-week to 13.604 million bpd, a slight decline from the previous week’s record.
Baker Hughes also reported an increase in active US oil rigs, which rose by +1 to a total of 483 rigs for the week ending December 20. This marks a modest rebound from a 2-3/4 year low of 477 rigs seen last month. Over the last two years, the number of US oil rigs has decreased from a 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 are solely for informational purposes. For more information, please view the Barchart Disclosure Policy
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
