Crude Oil and Gasoline Prices Decline Amid OPEC+ Supply Concerns

June WTI crude oil (CLM25) is down -0.90 (-1.52%), while June RBOB gasoline (RBM25) sees a decrease of -0.0314 (-1.53%). Overall, prices for crude oil and gasoline dipped today following OPEC+’s decision to expedite its meeting regarding potential increases in oil production. This change has raised worries about a surplus in global supplies. However, losses in oil prices are somewhat offset by a weaker dollar and a surge in the S&P 500, reaching a 1-month high, which indicates a positive outlook for energy demand.

OPEC+ Meeting and Market Speculation

Crude prices faced downward pressure after OPEC+ moved its video conference to discuss June production levels to Saturday, a change from the original schedule of Monday. This shift has sparked speculation that the alliance may raise crude production more than the previously planned increase of +411,000 barrels per day (bpd) for May.

Concerns about an oversupply are heightened after a Reuters report indicated that Saudi Arabia is prepared to endure lower oil prices for an extended period. This declaration rekindles fears of increased production from the OPEC+ coalition. Furthermore, sources suggest that several members may advocate for more robust output hikes in June, potentially intensifying the saturation of the global market. OPEC+ is set to meet on May 5 to finalize the June output strategy.

Positive Economic Indicators and Their Impact

On a positive note, recent economic data supports growth and energy demand. In the U.S., April nonfarm payrolls increased by +177,000, surpassing the anticipated +138,000. Additionally, March factory orders rose by +4.3% month-over-month, marking the largest uptick in eight months. Furthermore, the Eurozone’s April S&P manufacturing PMI was revised upwards by +0.3 to 49.0, and the unemployment rate remained steady at a record low of 6.2% in March.

Potential Sanctions and Global Supply Dynamics

New sanctions on Russian crude could further limit global oil supplies. U.S. Senator Lindsey Graham indicated that he has garnered support from 72 senators for proposed legislation imposing strict sanctions on Russia, potentially including a 500% tariff on imports from nations purchasing Russian oil, natural gas, and uranium.

Meanwhile, talks between the U.S. and Iran over Iran’s nuclear program have advanced, with further meetings scheduled in Europe. An agreement may result in the U.S. lifting export restrictions on Iranian crude, which could increase global supply and negatively affect crude prices.

Global Oil Supply Trends

Evidence of increasing crude oil stored on tankers also suggests bearish sentiment in the market. Vortexa reported a +34% week-over-week increase in crude oil stored on stationary tankers, reaching 90.73 million barrels by April 25, the highest in nine months.

Furthermore, the market is reacting negatively to OPEC+’s announcement on April 3, indicating a planned increase in crude production for May of +411,000 bpd. This increase is considerably higher than the prior month’s +138,000 bpd lift. OPEC+ is working to reverse a two-year production cut, but now anticipates that production won’t fully return to pre-cut levels until September 2026. In April, OPEC’s crude production fell by -200,000 bpd to 27.24 million bpd.

Demand Sources Supporting Prices

Demand from China, the largest importer of crude oil globally, provides some support for prices. Reports indicate that China’s crude imports rose to 12.1 million bpd in March, the highest level since August 2023.

In line with efforts to curb Russian oil imports, the U.S. imposed additional sanctions on January 10, aimed at companies like Gazprom Neft and Surgutneftgas, significantly impacting their export volumes. Despite sanctions, Russian oil product exports reached a five-month high of 3.45 million bpd in March, with crude exports reportedly increasing by +40,000 bpd week-over-week.

Inventory Updates and Rig Counts

According to Wednesday’s EIA report, U.S. crude oil inventories as of April 25 were -6.6% below the five-year seasonal average. Gasoline inventories also fell by -3.9%, and distillate inventories were -11.9% below their seasonal norms. U.S. crude oil production remained steady at 13.465 million bpd, just below the record high of 13.631 million bpd set in December 2022.

Baker Hughes reported that active U.S. oil rigs increased by +2 to 483 in the week ending April 25. This figure is still above the three-and-a-quarter-year low of 472 rigs recorded in January, though down from the five-year high of 627 rigs seen 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 is solely for informational purposes. For more information please view the Barchart Disclosure Policy.

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