Crude Oil Prices Surge Amid US-China Tariff Reductions

June WTI crude oil (CLM25) closed Monday at +0.93 (+1.52%), while June RBOB gasoline (RBM25) saw an increase of +0.0247 (+1.17%).

Market Overview: Rising Prices and Economic Signals

On Monday, crude oil and gasoline prices climbed significantly. Crude oil reached a two-week high, and gasoline prices hit a six-week peak. This upward trend followed a recent agreement between the US and China to lower tariffs on each other’s products, which alleviated trade tensions and bolstered expectations for global economic activity and energy demand. Moreover, the S&P 500 Index’s rise to a two-and-a-half-month high reflects increased confidence in the economic landscape, further supporting energy demand and crude prices. However, crude prices slightly retreated after the dollar index (DXY00) reached a one-month high.

US-China Tariff Agreement

The surge in crude prices on Monday was influenced by the US and China agreeing to reduce tariffs temporarily for three months. The US will lower tariffs on Chinese products from 145% to 30%, while China will decrease its duties from 125% to 10%.

US Gasoline Demand Insights

The outlook for US gasoline demand remains positive, supporting crude prices. The American Automobile Association estimates that 39.4 million Americans will travel by car this Memorial Day weekend, representing a 3.1% increase from last year, largely due to gasoline prices being 50 cents a gallon lower than in 2022.

Geopolitical Factors Impacting Prices

Easing geopolitical risks in the Middle East may exert downward pressure on crude prices. President Trump announced the US would halt its bombing campaign against Houthi rebels in Yemen, facilitated by a ceasefire brokered by Oman. Additionally, Vice President Vance indicated that a nuclear deal with Iran could lead to the country’s reintegration into the global economy.

OPEC+ Production Trends

Last Monday, crude prices fell to a five-week low driven by concerns over a global oil surplus after OPEC+ agreed to increase production levels by 411,000 barrels per day (bpd) starting this June. Saudi Arabia hinted that further increases might follow, aimed at balancing production among overproducing OPEC+ members like Kazakhstan and Iraq. This decision is part of OPEC+’s broader strategy to gradually restore a total of 2.2 million bpd of production while extending the timeline for fully restoring production cuts until September 2026.

Iran Talks and Supply Implications

Recent talks between the US and Iran over a nuclear deal may lead to changes in crude oil supply dynamics. If a deal is reached, it could prompt the US to lift restrictions on Iranian crude oil exports, potentially adding more supply to the global market and putting downward pressure on crude prices.

Inventory and Production Updates

Recent data showed an increase in crude oil stored worldwide on tankers. Vortexa reported that crude oil on stationary tankers rose by 11% week-over-week to 93.32 million barrels for the week ending May 2.

Supporting crude oil prices, the US imposed new sanctions on Russia’s oil industry earlier in the year. The sanctions targeted major players like Gazprom Neft and Surgutneftgas, which contributed to about 30% of Russian tanker flows. Although Russian oil product exports reached a five-month high in March, recent reports indicated a weekly decline in crude exports of 190,000 bpd.

US Oil Rig Count and Production Trends

According to Baker Hughes, the number of active US oil rigs fell by five to 474 in the week ending May 9, slightly above the three-and-a-quarter-year low of 472 recorded on January 24. This marks a significant reduction from the five-year high of 627 rigs seen in December 2022. As of May 2, US crude oil inventories were 7.3% below the seasonal five-year average, with gasoline and distillate inventories also showing declines.

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.