Oil Prices Climb Amid Sanction Pressure and Supply Concerns
Key Factors Driving Up Crude and Gasoline Prices
March WTI crude oil (CLH25) today is up +1.16 (+1.63%), and March RBOB gasoline (RBH25) is up +0.0046 (+0.22%).
Crude oil and gasoline prices are experiencing upward trends, mainly due to stricter US sanctions on Russian crude that are limiting global oil supplies. This situation allows major Middle Eastern oil producers to increase their prices. Additionally, concerns about further tightening in global crude supplies have emerged following the US’s increased sanctions on Iranian crude exports last Thursday. However, a stronger dollar today is capping some gains in crude oil.
Middle East Influence on Prices
Support for oil prices has been bolstered by Saudi Arabia, Iraq, and the United Arab Emirates raising their crude selling prices to Asian customers for March delivery.
Crude prices are also rising following a report from Politico, which indicates that EU countries may begin seizing Russia’s illegal oil-exporting tankers in the Baltic Sea, citing environmental concerns and piracy as grounds for these actions.
The recent sanctions on Iranian crude exports have further supported crude prices. The US Treasury has targeted an international network facilitating shipments of Iranian crude oil to China, tightening the market further.
Meanwhile, the global decline in crude oil stored on tankers is considered bullish for prices. Vortexa reported a 14% week-over-week decrease in crude oil held on stationary tankers, bringing the total to 65.79 million barrels as of February 7.
OPEC+ and Production Plans
During its monthly meeting last Monday, OPEC+ decided not to alter its oil production plans for the first quarter but indicated a gradual restoration of crude output starting in April.
New Sanctions and Historical Context
On January 10, oil prices received a boost from new US sanctions on Russia’s oil industry, aimed at reducing global supply. These measures focused on Gazprom Neft and Surgutneftgas, which together exported about 970,000 barrels per day (bpd) in the first ten months of 2024, representing roughly 30% of Russia’s tanker flow, according to Bloomberg data. The sanctions also targeted insurers and traders connected to numerous tanker cargoes.
A decline in Russian crude oil exports has also provided support for crude prices. Bloomberg’s weekly vessel-tracking data revealed a decrease of 130,000 bpd, bringing Russian exports down to 3.09 million bpd for the week ending February 2.
The potential for new sanctions on Iranian and Russian exports suggests continued limitations on global oil supplies, which is optimistic for prices. US officials, including President Trump’s national security adviser, have emphasized a return to “maximum pressure” on Iran. US Treasury Secretary Bessent has also expressed strong support for increasing sanctions against Russian oil companies to amplify pressure related to the war in Ukraine.
Declining Russian Production and China’s Demand
Last month, OPEC+ postponed a planned increase in crude production by 180,000 bpd from January to April and communicated a more gradual unwinding of production cuts than previously anticipated. The UAE has also delayed a planned increase of 300,000 bpd to April. OPEC’s planned restoration of 2.2 million bpd through monthly increments has now been extended to September 2026. In January, OPEC’s crude production fell by 700,000 bpd to 27.03 million bpd.
However, crude oil demand in China, the world’s largest crude importer, has weakened, creating a bearish impact on oil prices. Chinese customs data indicates that crude imports in 2024 fell by 1.9% year-over-year to 553 million metric tons.
US Inventory and Production Overview
Last Wednesday’s EIA report provided updated insights into US oil inventories. As of January 31, crude oil inventories were noted to be 3.8% below the seasonal 5-year average, while gasoline inventories were 0.3% above that average and distillate inventories were down by 12.4% from the 5-year average. In the week ending January 31, US crude oil production climbed by 1.8% week-over-week to 13.478 million bpd, remaining slightly below the record high of 13.631 million bpd from early December.
Baker Hughes reported an increase in active US oil rigs, which rose by one to reach 480 rigs for the week ending February 7. This figure remains just above a three-year low of 472 rigs recorded on January 24. Over the past two years, the number of active US oil rigs has decreased from a high of 627 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.
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