Oil Prices Dip Amid Mixed Economic Signals and Sanction Concerns
March WTI crude oil (CLH25) is down -0.33 (-0.44%) today, while March RBOB gasoline (RBH25) has dropped -0.0246 (-1.17%).
Weak Crude and Gasoline Prices
Crude and gasoline prices have reached two-week lows today. Crude oil is facing downward pressure after Russian President Putin expressed a willingness to discuss Ukraine and oil prices with President Trump, alleviating fears of more U.S. sanctions on Russian crude. However, losses in crude are somewhat cushioned by a significant drop in the dollar index (DXY00), which fell to a five-week low. Additionally, recent data shows that manufacturing activity in the U.S. and Eurozone exceeded expectations, indicating stronger energy demand.
U.S. and Eurozone Manufacturing Data Surpasses Expectations
The latest economic reports reveal better-than-expected manufacturing growth in both the U.S. and Eurozone, bolstering energy demand. In the U.S., the January S&P manufacturing PMI increased by +0.7 to 50.1, surpassing the anticipated 49.8 and marking the fastest expansion in seven months. Similarly, the Eurozone’s January S&P manufacturing PMI rose by +1.0 to 46.1, exceeding the predicted 45.4.
Relations Between the U.S. and China Impact Trade Policies
President Trump hinted at a softer approach to tariffs, potentially reducing the risk of a global trade war. During a Fox News interview, he stated he would prefer not to impose tariffs on China, which could positively impact economic growth and energy demand.
Crude Inventory Increases Weigh on Prices
A rise in global crude oil stored on tankers, reported by Vortexa, is exerting downward pressure on prices. The amount of crude oil held on stationary tankers increased by +2.5% week-over-week to 54.23 million barrels by January 17.
New Sanctions on Russian Oil and OPEC+ Production Cuts
Crude oil prices have some support from sanctions the U.S. imposed on Russia’s oil industry on January 10. The sanctions targeted companies that exported approximately 970,000 barrels per day (bpd) and were enacted to limit global oil supplies. President Trump also warned he might pursue additional sanctions against Russia unless President Putin engages in negotiations regarding Ukraine.
Declining Russian Oil Exports
A decrease in Russian crude oil exports could support prices. Weekly vessel-tracking data from Bloomberg indicated that exports fell by -260,000 bpd to 2.75 million bpd as of January 19.
Future Sanctions ‘Maximum Pressure’ on Iran
The potential for new sanctions targeting Iranian and Russian crude exports might restrict global oil supply, which could support prices. Mike Walz, President Trump’s national security adviser appointee, committed to reinstating “maximum pressure” on Iran. Incoming Treasury Secretary Bessent expressed full support for increasing sanctions, particularly on Russian oil companies.
Recent Actions by OPEC+
OPEC+ has provided some support for crude oil prices by postponing a planned production increase of +180,000 bpd from January to April. Additionally, the United Arab Emirates (UAE) announced it would delay a 300,000 bpd production increase from January to April. Previously, OPEC+ agreed to restore 2.2 million bpd of output gradually between January and late 2025, but this timeline has now shifted to September 2026. OPEC’s December crude production decreased by -120,000 bpd to 27.05 million bpd.
China’s Weakening Oil Demand
Weakening demand for crude oil in China could negatively impact prices. According to Chinese customs data, crude imports for 2024 fell by -1.9% year-on-year to 553 million metric tons, highlighting China’s position as the world’s largest crude importer.
U.S. Crude Oil Inventories and Production Levels
According to Thursday’s weekly EIA report, as of January 17, U.S. crude oil inventories were -6.4% below the five-year seasonal average, gasoline inventories were -0.7% below, and distillate inventories were -5.7% lower than the five-year average. U.S. crude oil production remained constant from the previous week at 13.477 million bpd, just shy of the record high of 13.631 million bpd set in early December.
Active U.S. Oil Rigs Continue to Decline
Baker Hughes reported a reduction in active U.S. oil rigs, with the count dropping by -2 to 478 as of January 17, slightly above the two-and-three-quarter-year low of 477 recorded on November 29. Over the past two years, the number of U.S. oil rigs has decreased from a high of 627 rigs 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 here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
