U.S.-U.K. Trade Agreement Boosts Oil Prices
Crude oil and gas prices are experiencing a rollercoaster today! Here's what's happening:
The WTI crude oil for June (CLM25) is currently surging by +1.66 (+2.86%), while the June RBOB gasoline (RBM25) is on the rise too, at +0.0522 (+2.57%). So why are the prices moving?
Well, President Trump's recent announcement of a trade deal with the UK is certainly sparking some optimism. Trade tensions have eased, leading to a belief that more deals will follow, and that's good news for energy demand. There's also a drop in crude prices that's prompting U.S. producers to plan spending cuts, which should mean lower U.S. crude production. However, the dollar's strength is somewhat limiting the gains in crude prices.
Things get interesting with the news that Occidental Petroleum, APA Corp, and Permian Resources are slashing spending in the Permian Basin due to a fall in crude prices to a 4-year low. And speaking of lows, geopolitical risks in the Middle East have eased a bit with President Trump stating that the U.S. will cease bombing campaigns against Houthi rebels in Yemen after Oman negotiated a truce. Plus, there's murmurings of a nuclear deal with Iran that could reintroduce the country into the global economy—more supply on the market isn't exactly what crude prices need right now.
Crude prices plummeted to a 4-week low on Monday due to worries about a global oil surplus after OPEC+ agreed to increase crude production by 411,000 bpd in June. Saudi Arabia isn't helping matters, hinting at additional similar-sized increases in output, an apparent attempt to undercut overproducing OPEC+ members like Kazakhstan and Iraq. OPEC is lifting output to reverse a 2-year-long production cut, eventually restoring a total of 2.2 million bpd of production. It was initially aiming to restore production between January and late 2025, but now the full cut won't be restored until September 2026.
Additionally, tighter sanctions on Russian crude could limit global oil supplies and boost prices. Senator Graham is floating a bill that would impose "bone-crushing" new sanctions on Russia, potentially including a 500% tariff on imports and a ban on U.S. citizens from buying Russian sovereign debt. Negotiations between the U.S. and Iran over Iran's nuclear program are advancing, with both sides agreeing to meet again in Europe this week. Any agreement could lead to the removal of export restrictions on Iranian crude oil, flooding the market and bearing down on oil prices.
The number of crude oil tankers globally experiencing extended storage has dropped by 14% week-on-week to 79.84 million barrels, a positive sign for crude prices. And in support of higher crude prices, the U.S. imposed sanctions on Russia's oil industry in January, targeting Gazprom Neft and Surgutneftgas, exporters of about 970,000 barrels per day of Russian crude. As a result, Russian oil product exports in March hit a 5-month high of 3.45 million barrels per day.
Weekly data shows that U.S. crude oil inventories as of May 2 were down 7.3% below the seasonal 5-year average, while gasoline inventories were 3.1% below the same benchmark. Distillate inventories were a hefty 13.1% below the 5-year seasonal average. U.S. crude oil production in the week ending May 2 fell 0.7% week-on-week to 13.367 million barrels per day, slightly below the record high of 13.631 million barrels per day from the week of December 6.
Active U.S. oil rigs dropped by 4 in the week ending May 2, landing at 479 rigs, a figure moderately above the 3-1/4 year low of 472 rigs posted in January. Of course, this is all happening against a backdrop of fluctuating geopolitical factors, production adjustments, and trade negotiations.
In conclusion, the current energy market is shaped by a mix of trade deals, geopolitical risks, and supply adjustments. While trade talks might initially boost prices, geopolitical tensions could ease or fresh supply might appear on the market, exerting downward pressure on crude and gasoline prices. It's an exciting time to watch the energy market unfold!
- The modestly raised WTI crude oil and June RBOB gasoline prices could be attributed to the optimism sparked by President Trump's trade deal announcement with the UK.
- Despite the drop in crude prices, some oil companies like Occidental Petroleum, APA Corp, and Permian Resources have decided to reduce their spending in the Permian Basin, a surprising move amidst low crude prices.
- The sports of diplomacy are in play as well, with the potential for a ceasefire in Yemen and negotiations between the US and Iran that could reintroduce Iran into the global economy, thus contributing to a potential oversupply in the crude market.
