Oil Prices Rally After Tariff Pause; Global Supply Risks Persist

May WTI crude oil (CLK25) closed on Wednesday at +2.77 (+4.65%), while May RBOB gasoline (RBK25) finished up -0.0470 (+2.36%).

On Wednesday, crude oil and gasoline prices rebounded sharply from early losses due to short-covering following President Trump’s announcement of a 90-day pause on reciprocal tariffs for 56 countries, excluding China. Initially, crude prices hit a 4-year low, and gasoline fell to a 7-month low. The ongoing U.S. trade dispute negatively impacted crude prices as China and Europe retaliated against U.S. tariffs. Additionally, crude prices faced downward pressure after weekly EIA crude inventories surged to a 9-month high.

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Concerns regarding weaker global economic growth and energy demand continue to weigh on energy prices amidst tariff-related turmoil. U.S. tariffs on Chinese goods increased to 125% on Wednesday, following China’s retaliatory tariffs of 84% on U.S. goods, which take effect Thursday. Meanwhile, Europe responded with 25% tariffs on €21 billion worth of U.S. imports.

Crude prices also came under pressure after Saudi Arabia announced it would cut its flagship oil prices by $2.30 per barrel for May delivery, marking the largest reduction in over two years.

Adding to the bearish sentiment, crude prices suffered from a negative carryover from last Thursday when OPEC+ decided to increase crude production in May by 411,000 bpd, significantly exceeding this month’s addition of +138,000 bpd. OPEC+ aims to reverse the effects of a two-year-long production cut, gradually restoring 2.2 million bpd. The group originally planned to reinstate full production between January and late 2025, but this timeline has now been extended to September 2026. In March, OPEC’s crude production rose by +80,000 bpd to reach a 13-month high of 27.43 million bpd.

Global crude oil stored on tankers is another bearish factor, with Vortexa reporting a +4.3% week-on-week increase to 58.56 million barrels for the week ending April 4.

Despite these pressures, crude oil found some support when the U.S. Treasury Department’s Office of Foreign Assets Control sanctioned a China-based oil refinery and 19 entities linked to shipping Iranian crude oil. This move reflects the U.S. strategy to curb Iranian crude exports, as President Trump recently issued a letter to Iran’s Supreme Leader Ali Khamenei, indicating a two-month deadline for a new nuclear agreement. Rystad Energy A/S estimates that a maximum-pressure campaign could reduce Iranian crude exports by as much as 1.5 million bpd, potentially boosting crude prices.

Middle East tensions are providing further support for crude prices, as conflicts could disrupt supplies. Notably, Israel has resumed airstrikes in Gaza, ending a two-month ceasefire with Hamas. Israeli Prime Minister Netanyahu has pledged to act “with increasing military strength,” aiming to disarm Hamas and release hostages. Furthermore, U.S. strikes against Yemen’s Houthi rebels are set to continue unrelentingly until the group ceases attacks on vessels in the Red Sea.

In January, the U.S. implemented new sanctions on Russia’s oil sector aimed at limiting global supplies. These measures targeted Gazprom Neft and Surgutneftgas, which contributed approximately 970,000 bpd of Russian crude in the first ten months of 2024, equivalent to about 30% of its tanker flow. Additionally, the U.S. is targeting insurers and traders associated with hundreds of tanker shipments. In March, Russian oil product exports rose to a 5-month high of 3.45 million bpd, while Russian crude exports increased by +40,000 bpd week-on-week to reach 3.07 million bpd as of March 30.

The EIA’s weekly report released on Wednesday presented mixed signals for crude and refined products. On the downside, EIA crude inventories climbed by +2.55 million barrels to a 9-month high, aligning with expectations. Crude supplies at Cushing, the delivery point for WTI futures, also rose by +681,000 barrels. On the upside, EIA gasoline stockpiles decreased by -1.6 million barrels, surpassing expectations of a -1.4 million barrels decline. Additionally, EIA distillate inventories unexpectedly fell -3.5 million barrels to a 16-month low compared to expectations of a +100,000 barrels build.

According to the EIA report, U.S. crude oil inventories were -5.2% lower than the seasonal 5-year average as of April 4. Gasoline inventories exceeded the seasonal 5-year average by +0.4%, while distillate inventories were -8.9% below the 5-year seasonal average. U.S. crude oil production for the week ending April 4 decreased by -0.9% week-on-week to 13.458 million bpd, slightly below the record high of 13.631 million bpd observed during the week of December 6.

Baker Hughes reported that the number of active U.S. oil rigs increased by +5 to 489 rigs, reaching a 10-month high in the week ending April 4. This is moderately above the 3-year low of 472 rigs recorded on January 24. Over the past two years, the count has declined significantly from the 4.5-year high of 627 rigs seen in December 2022.

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

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