Crude Oil Prices Rise Amid Geopolitical Tensions and Tariff Changes

May WTI crude oil (CLK25) is up +0.69 (+1.01%), with May RBOB gasoline (RBK25) closing higher at +0.0094 (+0.43%).

Current Market Overview

Crude oil and gasoline prices have increased moderately today, with crude reaching a three-week high. This uptick followed President Trump’s announcement of a 25% secondary tariff on nations importing oil or gas from Venezuela, effective April 2. Simultaneously, reports indicate that the U.S. will implement targeted reciprocal tariffs on the same date, alleviating some pressure on global growth and energy demand. Additionally, today’s rally in the S&P 500 to a two-week high signifies growing confidence in the economic outlook, bolstering energy demand, although the 2-week high in the dollar index (DXY00) limits further gains in crude oil.

Factors Influencing Crude Prices

Support for crude oil stems from recent actions by the U.S. Treasury Department’s Office of Foreign Assets Control, which sanctioned a China-based oil refinery along with 19 entities and vessels involved with Iranian crude oil shipping. Intensified pressure on Iranian crude exports follows President Trump’s letter to Iran’s Supreme Leader, Ali Khamenei, giving Iran two months to negotiate a new nuclear deal. According to Rystad Energy A/S, these maximum-pressure tactics could potentially eliminate 1.5 million barrels per day (bpd) of Iranian crude from global supply, contributing positively to crude prices.

Geopolitical Tensions and Supply Disruptions

Rising tensions in the Middle East are also impacting crude oil prices by heightening concerns over supply disruptions. Israel has resumed airstrikes in Gaza, breaking a nearly two-month ceasefire with Hamas. Israeli Prime Minister Netanyahu has pledged to escalate military action to rescue hostages and neutralize Hamas. Concurrently, the U.S. is targeting Houthi rebels in Yemen, with Defense Secretary Hegseth stating that strikes will be “unrelenting” until attacks on vessels in the Red Sea cease.

Impacts of Russian Oil Exports and OPEC+ Decisions

On the contrary, surging Russian oil exports have exerted downward pressure on crude prices. Bloomberg data, analyzed by Vortexa, revealed that February oil products exports from Russia peaked at 2.5 million bpd, the highest in a year. Furthermore, crude prices faced additional downward pressure when OPEC+ announced on March 3 plans to lift some halted crude output in April, increasing global supplies by 138,000 bpd. This marks a shift in strategy to gradually reverse a two-year production cut of 2.2 million bpd, which is now projected to restore full production only by September 2026.

Sanctions and Changing Demand Dynamics

Supporting crude prices are the new U.S. sanctions on Russia’s oil sector imposed on January 10, targeting Gazprom Neft and Surgutneftgas, which accounted for approximately 970,000 bpd of crude exports in early 2024. These sanctions also encompassed insurers and traders associated with numerous tanker shipments. Recent vessel-tracking data indicates a decline in Russian crude exports, decreasing by 30,000 bpd to 3.45 million bpd as of the week ending March 16.

China’s Demand and Global Storage Levels

On a bearish note, China’s crude oil demand has weakened. As reported by Chinese customs data, crude imports fell by 1.9% year-over-year to 553 million metric tons in 2024. Additionally, an increase in global crude oil held in tankers signals softer demand, with Vortexa reporting a 7.6% week-over-week rise to 67.43 million barrels for tankers stationary for at least seven days as of March 21.

U.S. Inventory Data and Rig Count Developments

The latest EIA report, released last Wednesday, indicated that U.S. crude oil inventories were 4.8% below the seasonal five-year average as of March 14. Gasoline inventories, on the other hand, were 2.7% above the average, while distillate inventories showed a decrease of 5.9% from the seasonal benchmark. U.S. crude oil production remained stable at 13.573 million bpd during the same week, slightly under the December 6 record of 13.631 million bpd.

Baker Hughes reported last Friday that the number of active U.S. oil rigs dropped by one to 486 in the week ending March 21. This count is just above the three-year low of 472 rigs recorded on January 24, following a decline from the 627 rig high noted 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 are solely for informational purposes. For more information, please view the Barchart Disclosure Policy.

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