WTI Crude Oil Prices Drop Amid Economic Concerns and Market Pressure

On Thursday, May WTI crude oil (CLK25) finished down -2.07, or -3.32%, while May RBOB gasoline (RBK25) also saw a notable decline of -0.0771, or -3.78%. These steep drops were primarily driven by fears that the ongoing U.S. trade war may hinder economic growth and weaken energy demand.

Additionally, a selloff in the stock market on Thursday dampened confidence in future economic prospects and further strained energy demand. This decline in crude prices was compounded by last Thursday’s announcement from OPEC+ to increase crude production in May.

Despite some underlying support from a weakening dollar index (DXY00), which recently reached a 6-1/4 month low, crude prices faced significant headwinds. Overall, the market sentiment was bleak as crude oil prices tumbled to a 4-year low on Wednesday.

Trade Tariffs Affecting Market Stability

Tariff-related anxieties are significantly impacting energy pricing. This week, U.S. tariffs on Chinese imports increased to 125% following China’s retaliatory measures, where they imposed 84% tariffs on U.S. goods. Though President Trump announced a temporary pause on reciprocal tariffs, most of the initial tariffs remain effective, continuing to generate uncertainty.

Moreover, producers like Saudi Arabia are cutting oil prices. This Sunday, they announced a reduction of $2.30 per barrel for customers ordering May delivery, marking the most substantial cut in over two years. Crude prices also carry the weight of OPEC+’s decision to boost crude output by 411,000 bpd, significantly surpassing the planned increment of 138,000 bpd for the previous month. This move is part of OPEC+’s strategy to reverse a two-year production cut, with a goal of bringing back a total of 2.2 million bpd by September 2026.

Rising Global Oil Supply Concerns

The accumulation of crude oil globally also raises alarm for pricing trends. Vortexa’s reports indicated that crude oil stored temporarily on tankers increased by +4.3% week-on-week, reaching 58.56 million barrels as of April 4.

Adding complexity to the crude market, the U.S. Treasury’s sanctions against a China-based refinery linked to Iranian crude oil shipments aim to decrease Iranian exports. With President Trump asserting that Iran has until May to negotiate a new nuclear deal, some estimates suggest a maximum-pressure campaign could eliminate up to 1.5 million bpd from the market, potentially impacting crude prices favorably.

Geopolitical Tensions and Their Impact on Prices

Increased geopolitical tensions in the Middle East are contributing to instability in crude supply. Israel’s ongoing airstrikes in Gaza have disrupted a two-month ceasefire, while escalating military actions against Hamas could lead to further regional disturbances. Additionally, U.S. military actions targeting Houthi rebels in Yemen, deemed “unrelenting” by Defense Secretary Hegseth, have also raised fears about potential disruptions to regional oil supplies.

Moreover, new sanctions from the U.S. on Russia’s oil sector could further tighten global oil supply. These sanctions target fundamental players in the Russian industry and could restrain the 970,000 bpd typically exported by Gazprom Neft and Surgutneftgas.

Market Inventory and Production Trends

According to the latest report from the EIA, U.S. crude oil inventories as of April 4 were 5.2% below the seasonal five-year average. Conversely, gasoline gallon inventories exceeded it by 0.4%, while distillate levels were down 8.9% relative to the five-year baseline. Additionally, U.S. crude oil production slightly decreased by 0.9% to 13.458 million bpd, remaining close to the historical peak of 13.631 million bpd recorded in December.

Lastly, Baker Hughes reported a modest increase in active U.S. oil rigs, rising by five to reach a 10-month high of 489 rigs. This trend indicates a potential bottoming out after a steep drop from the December 2022 high of 627 rigs, presenting a complicated picture for the oil market moving forward.

On the date of publication, Rich Asplund did not hold any positions in the securities mentioned in this article. All information presented here is intended for informational purposes only. For more details, please view the Barchart Disclosure Policy here.

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