Crude Oil and Gas Prices Surge Amid Sanctions and Economic Optimism
June WTI crude oil (CLM25) closed up +1.72 (+2.78%) on Tuesday, while June RBOB gasoline (RBM25) increased by +0.0329 (+1.54%).
Market Overview
On Tuesday, both crude oil and gasoline prices experienced significant increases, with crude reaching a two-week high and gasoline a six-week high. The weaker dollar contributed to rising energy prices, alongside a rally in stocks, which signaled improved confidence in the economic outlook and energy demand.
Geopolitical Factors and Supply Outlook
Crude oil prices were also bolstered by the U.S. imposing sanctions on an international network involved in shipping Iranian crude to China. The U.S. State Department sanctioned the Iranian company Sepehr Energy Jahan Nama Pars for allegedly using revenues from oil sales to fund weapon development, including ballistic missiles and nuclear proliferation.
Additionally, a recent agreement between the U.S. and China to lower tariffs temporarily is providing further support. The U.S. reduced its tariffs on Chinese goods from 145% to 30%, while China reduced its duties from 125% to 10%.
Demand Projections for Gasoline
The American Automobile Association projects that 39.4 million Americans will travel by car this Memorial Day weekend, reflecting a 3.1% increase from last year, thanks to gasoline prices being approximately 50 cents per gallon cheaper than a year ago. This anticipated rise in gasoline demand adds further support to crude prices.
Geopolitical Risks and Market Response
Despite these supportive factors, easing tensions in the Middle East may negatively impact crude prices. President Trump announced the end of U.S. bombing campaigns against Houthi rebels in Yemen following a mediated ceasefire, and discussions for a potential nuclear deal with Iran are also ongoing.
Production Trends and OPEC+ Strategy
Crude prices previously fell to a five-week low due to concerns over a global oil oversupply after OPEC+ announced an increase in production by 411,000 barrels per day (bpd) in June. Saudi Arabia indicated that it may continue to lift output to further reduce prices and address overproduction by members like Kazakhstan and Iraq.
OPEC+ plans to gradually add 2.2 million bpd back into its supply, having previously aimed to complete these production cuts by late 2025. As of April, OPEC crude production decreased by 200,000 bpd to 27.24 million bpd.
Negotiations and Crude Oil Supplies
Advancements in negotiations regarding Iran’s nuclear program could affect crude prices. Progress in talks could lead to the U.S. lifting restrictions on Iranian oil exports, potentially increasing global supplies.
According to Vortexa, crude oil held on tankers increased by 11% week-on-week to 93.32 million barrels, indicating more bearish pressure on prices.
Impact of Sanctions on Russian Oil
In January, the U.S. imposed new sanctions on Russia’s oil sector, targeting Gazprom Neft and Surgutneftgas, which accounted for approximately 30% of Russia’s crude exports in early 2024. Though Russian oil product exports climbed to a five-month high of 3.45 million bpd in March, recent data showed a weekly drop of 190,000 bpd as of May 4.
Inventory Expectations and Industry Updates
Market analysts anticipate a decrease in Wednesday’s weekly EIA crude inventories by 2.0 million barrels and a reduction in gasoline supplies by 875,000 barrels.
The latest EIA report indicated that U.S. crude oil inventories as of May 2 were 7.3% below the seasonal five-year average. Gasoline inventories were down 3.1%, and distillate inventories were reported at 13.1% below the five-year average. U.S. crude oil production for the week ending May 2 fell by 0.7% to 13.367 million bpd, slightly under last December’s record high.
Baker Hughes reported a decline in active U.S. oil rigs, dropping by five to 474 rigs, marking a levelling just above the 3-1/4 year low of 472 rigs from January 24. The total number of U.S. oil rigs has decreased considerably over the past two years from a high of 627 rigs recorded in December 2022.
On the date of publication, Rich Asplund did not hold any positions in the securities mentioned in this article. All information is provided solely for informational purposes.
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The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
