Why the Rollercoaster Ride with Crude Oil and Gasoline Prices?
Oil Prices Faced Pressure as OPEC+ Augments Production Levels
Monday saw a wild ride for oil and gasoline prices, with crude oil (CLM25) ending the day lower by 1.99%, while gasoline (RBM25) managed a small recovery of 0.14%.
Oversupply fears weighed heavily on oil prices following OPEC+'s decision to boost crude production and Saudi Arabia's announcement of potential further increases. This move came after a 411,000 bpd increase agreed for June and could push prices down even further to punish overproducers like Kazakhstan and Iraq.
A weaker dollar and signs of US service sector strength kept losses in check for crude. On the other hand, the modest gains seen in gasoline were due to a reported fire at the Valero Energy refinery in California, triggering short-covering in gasoline futures.
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Persistent Trade Tensions and Crude Volatility
The looming US-China trade war continues to cast a shadow over the global economy and energy demand. With President Trump showing no signs of engaging with Chinese President Xi Jinping, the market nervously awaits the impact on crude prices.
Positive Global Economic Indicators – A Silver Lining for Crude
However, the latest global economic news offered a glimmer of hope, with the US Apr ISM services index rising unexpectedly to 51.6 and the Eurozone May Sentix investor confidence index jumping stronger than expected to -8.1.
Sanctions Engines for Maximum Crude Output?
Since last week, additional sanctions against Russian crude could potentially curb global oil supplies, leading to increased prices. US Senator Graham announced a bill supported by 72 senators that proposes severe new sanctions on Russia, including a 500% tariff on imports from countries buying Russian crude.
Iran Nuclear Deal in Sight? Implications for Oil Market
Negotiators from the US and Iran have reportedly agreed to continue talks on Iran's nuclear program this week in Europe. Any deal could lead to the removal of export restrictions on Iranian crude oil, boosting the market and potentially pressuring oil prices downward.
Storage Levels Key to Oil Prices – A Decline is a Good Sign
Monitoring crude oil stored on tankers offers valuable insights about global oil supply. According to Vortexa, the weekly decline in crude oil stored on tankers that have been stationary for at least seven days is positive for oil prices. Specifically, the weekly decrease was -14% w/w to 79.84 million bbl in the week ending May 2.
Demand Growth from China – A Bullish Factor
Stronger crude demand in China, the world's largest crude importer, remains an essential factor bolstering oil prices. Reuters reported that China's Mar crude imports reached 12.1 million bpd, the highest since August 2023.
US Sanctions on the Russian Oil Industry – Potential Curb on Global Oil Supply
New US sanctions on Russia's oil industry, imposed on January 10, could reduce global oil supplies. The measures targeted key players like Gazprom Neft and Surgutneftgas, exporting about 970,000 bpd of Russian crude in the first 10 months of 2024. The sanctions have already impacted Russian crude exports, rising to a 5-month high of 3.45 million bpd in March.
US Crude Inventories and Production – A Mixed Picture
According to the EIA report, US crude oil inventories were -6.6% below the seasonal 5-year average as of April 25. However, gasoline inventories and distillate inventories were -3.9% and -11.9% below the seasonal 5-year average, respectively. Despite this, US crude oil production in the week ending April 25 remained unchanged w/w at 13.465 million bpd.
Oil Rig Count – Double-Edged Sword for Crude Prices
Baker Hughes reported that active US oil rigs fell -4 last week to 479 rigs, moderately above the 3-1/4 year low of 472 rigs posted in January. Though this decline reflects fewer active rigs, it could potentially indicate a slowing of US crude output and contribute to a tighter market, benefiting oil prices in the long run.
- The bearish sentiment in the oil-and-gas industry, triggered by OPEC+'s decision to boost crude production and Saudi Arabia's potential further increases, weighed heavily on oil prices on Monday.
- Investors in the energy sector may find more promising returns in private markets, especially considering the average returns on Wall Street.
- The disclosure of a fire at the Valero Energy refinery in California on Monday contributed to the modest gains made in gasoline prices.
- The average weekly decrease in crude oil stored on tankers offers valuable insights about the global energy market, with a recent decline being positive for oil prices.
- The energy industry is closely monitoring the Iran nuclear deal negotiations, as any deal could impact crude oil market disclosure and potentially pressuring oil prices downward.
