Crude Oil and Gasoline Prices Surge Amid Trade Tensions and Strong Economic Data
Oil Prices Post Weekly Highs
March WTI crude oil (CLH25) closed Monday at $0.63 higher, up +0.87%. Similarly, March RBOB gasoline (RBH25) gained +0.0589, a +2.86% increase. Prices for both crude oil and gasoline rose notably, with crude reaching a one-week high and gasoline a two-week high.
This rally in crude oil came after President Trump declared tariffs on imports from Canada and Mexico—both of which are major crude oil suppliers to the U.S.—on Saturday. Positive economic reports from the U.S. also contributed to a brighter outlook for energy demand. However, gains were tempered as the dollar index (DX00) climbed to a three-week high, and President Trump announced a one-month delay for tariffs on Mexico.
Positive U.S. Economic Indicators Boost Energy Demand
Monday’s economic updates surpassed expectations, further boosting energy demand and crude prices. The January ISM Manufacturing Index rose by +1.7 to 50.9, exceeding the forecast of 50.0 and marking the highest level in over two years. Additionally, December construction spending increased by +0.5% month-over-month, also higher than the anticipated +0.2% increase.
The crude crack spread—a measure of the difference between the cost of crude oil and the prices of refined products like gasoline—jumped to a five-and-a-quarter month high, signaling refineries to increase purchases of crude oil for processing.
Global Supply Constraints Favor Higher Prices
A recent drop in global crude oil stocks held on tankers is another bullish sign for oil prices. According to Vortexa, crude stored on stationary tankers fell by -6.9% week-over-week, reaching 67.30 million barrels as of January 31.
During its monthly meeting on Monday, OPEC+ announced it would maintain its current oil production plans through the first quarter, with gradual increases set to start in April.
U.S. sanctions imposed on Russia’s oil industry on January 10 could further constrict global oil supplies. The sanctions targeted major Russian companies like Gazprom Neft and Surgutneftgas, which together exported around 970,000 barrels per day (bpd) in the first ten months of 2024—about 30% of Russia’s tanker flow, according to Bloomberg data. Other sanctions also focused on insurers and traders associated with numerous tanker shipments.
In particular, a reduction in Russian oil exports is strengthening crude oil prices. Weekly vessel-tracking data from Bloomberg indicated Russian crude exports fell by -260,000 bpd to 2.75 million bpd as of January 19.
Upcoming Sanctions Could Limit Global Supplies
The prospect of new sanctions on Iranian and Russian crude can potentially limit global oil supplies, pushing prices higher. Mike Walz, President Trump’s national security adviser, emphasized the U.S. would return to a strategy of “maximum pressure” on Iran. Additionally, U.S. Treasury Secretary Bessent stated he strongly supports increasing sanctions, particularly against Russian oil companies.
Last month, OPEC+ delayed a planned production increase of +180,000 bpd from January to April and announced it would unwind production cuts more cautiously. The United Arab Emirates also indicated it would postpone a 300,000 bpd increase in its production target from January to April. Originally, OPEC+ aimed to restore 2.2 million bpd of output in gradual increments until late 2025, but this timeline has now been pushed back to September 2026. In January, OPEC’s crude production saw a reduction of -700,000 bpd, totaling 27.03 million bpd.
Chinese Demand Remains a Concern
China’s demand for crude oil has declined, creating some bearish pressure on oil prices. Recent customs data revealed that China, the largest crude importer globally, experienced a year-over-year decline of -1.9% in crude imports, totaling 553 million metric tons in 2024.
According to last Wednesday’s EIA report, as of January 24, U.S. crude oil inventories were -5.6% below the seasonal five-year average. Gasoline inventories were -0.3% below, and distillate inventories were -8.7% below the five-year seasonal average. U.S. crude oil production also dipped by -1.8% week-over-week to 13.24 million bpd, slightly short of the record high of 13.631 million bpd set the week of December 6.
Increase in Active Oil Rigs
Baker Hughes reported that active U.S. oil rigs rose by +7 to 479 rigs in the week ending January 31, bouncing back from a three-year low of 472 rigs. Over the past two years, the number of rigs has significantly decreased from December 2022’s 4.5-year high of 627 rigs.
On the date of publication, Rich Asplund did not hold positions in any of the securities mentioned in this article. All information and data in this article are for informational purposes only. For more details, please refer to the Barchart Disclosure Policy here.
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