Crude oil and gasoline prices experienced an uptick on Friday, marking a significant moment in the market as May WTI crude oil closed up by 2.38%, while May RBOB gasoline saw a 1.93% increase. This rise can be attributed, in part, to a drop in the dollar index, which decreased to a three-year low, igniting a broader rally across various commodities. However, the ongoing friction in the US-China trade relationship put a cap on crude oil prices. China’s response to the US’s tariff increases—raising its tariffs on all US imports to 125%—has led to worries about potential ripple effects on global markets.
Additionally, the recent announcement by OPEC+ regarding an increase in crude production for May has also placed pressure on prices. The group plans to raise production by 411,000 barrels per day (bpd), a substantial increase from the 138,000 bpd added this month. This shift comes as a response to diminishing global demand amid tariff-related tensions and discouraging consumer sentiment in the US.
Falling consumer confidence, as highlighted by the University of Michigan’s consumer sentiment index dropping to a low of 50.8—which was significantly below the anticipated 53.5—has cast a shadow over energy demand. Weakness in the crude crack spread, a vital indicator that influences refinery purchasing decisions, also suggests reduced interest in crude as refining margins tighten. The crack spread recently dipped to a four-week low, reflecting these market dynamics.
Crude oil prices have shown volatility over the past week, with prices nearing a four-year low following concerns regarding the weakening global economy. While the US has attempted to alleviate some tensions by pausing reciprocal tariffs, many tariffs remain active, adding uncertainty to the market’s outlook.
Further increasing the bearish sentiment, Saudi Arabia recently announced significant cuts in their flagship oil prices, the most considerable decrement in over two years. This decision underscores the growing competition and pressures facing global oil markets.
Inventory levels are also a factor to consider. Ongoing reports reveal that crude oil held on tankers has increased, which is typically associated with declining prices. Vortexa indicated a weekly rise of 4.3% in crude storage on stationary tankers, bringing the total to 58.56 million barrels, further signaling surplus conditions in the market.
Geopolitical tensions continue to support crude prices somewhat, particularly with the recent US sanctions against Iranian crude exports aimed at pressuring Iran into negotiations over its nuclear program. The US administration’s actions may reduce as much as 1.5 million bpd of Iranian oil from global markets, which could provide a bullish backdrop for prices.
Tensions in the Middle East, particularly with Israel’s military actions against Hamas and the US’s strikes on Yemeni Houthi forces, are also catalysts that could disrupt supply lines. Such events have investors wary of potential interruptions in supply, adding a layer of complexity to the crude oil market.
Sanctions imposed by the US on Russia’s oil sector could further tighten global supply, pushing prices higher. The targeting of major Russian firms like Gazprom Neft reinforces concerns over available supply amidst ongoing global demand challenges.
In the latest EIA report, the data revealed nuances in US crude inventories, indicating that levels are currently 5.2% below the five-year seasonal average. However, gasoline inventories slightly exceeded the seasonal average by 0.4%, while distillate inventories were down by 8.9% from the historical mark. Furthermore, US crude production has seen slight declines recently, dropping to 13.458 million bpd, shy of the record high set late last year.
Baker Hughes noted a downturn in the number of active oil rigs in the US, decreasing to 480, reflecting ongoing adjustments in domestic production capacity. This figure has notably decreased since reaching a multi-year high, indicating that operators are navigating the challenges of a fluctuating market landscape.
As crude oil traders and investors adjust their strategies, they continue to monitor various factors influencing the market—from geopolitical events to production decisions. The interplay between demand, consumer confidence, and international trade relations remains critical in shaping the trajectory of oil prices in the coming weeks.
