April WTI crude oil (CLJ25) Tuesday closed down -0.11 (-0.16%), and April RBOB gasoline (RBJ25) closed up +0.0064 (+0.29%).
Crude oil and gasoline prices Tuesday settled mixed, with crude falling to a 2-3/4 month low. Crude prices were under pressure Tuesday due to concerns that escalating global trade tensions will reduce economic growth and dampen energy demand after Canada and China retaliated against US tariffs with tariffs of their own on US goods. Crude also had some negative carryover from Monday, when OPEC+ said it would restart some halted crude production in April. In addition, Tuesday's slump in the S&P 500 to a 4-month low reduces confidence in the economic outlook and energy demand.
Crude prices have underlying support from Tuesday's decline in the dollar index to a 2-3/4 month low. Also, gasoline prices closed higher after the US placed a 10% tariff on Canadian energy products, which will boost the prices to US refiners that depend heavily on imported grades of heavy crude from Canada, especially in the Midwest, to make gasoline and distillates.
Crude prices were undercut when OPEC+ said Monday it will restart some halted crude output in April, adding 138,000 bpd to global supplies. That is first of a series of monthly hikes to reverse the 2-year production cut, which will gradually restore a total of 2.2 million bpd. OPEC+ had previously planned to restore production between January and late 2025, but now that production cut won't be fully restored until September 2026. OPEC Jan crude production fell -700,000 bpd to 27.03 million bpd.
The US on Tuesday imposed 25% tariffs on US imports from Canada and Mexico and doubled tariffs on imports from China to 20% from 10%. The US imposed a lower 10% tariff on US imports of energy resources from Canada, including crude oil. Canada responded with a package of counter-tariffs against US-made products effective immediately that includes 25% tariffs on about C$30 billion ($20.6 billion) worth of goods from US exporters, with a second round of tariffs on C$125 billion of products in three weeks, including big-ticket items like cars, steel, and aluminum. Canada is the largest single buyer of US goods, and vice versa. China also announced tariffs as high as 15% on US agricultural goods today, effective March 10, and banned trade with some defense companies in retaliation for US tariffs.
Crude has support after a Sunday meeting between Iraq and oil companies operating in the Kurdistan region failed to reach an agreement on restarting crude exports due to a dispute over the role of an international consultant to oversee contracts, costs, and payments. The disagreement is delaying the resumption of crude exports from Kurdistan via an oil pipeline through Turkey. Those pipeline shipments of about 185,000 bpd have been shut down for the past two years due to a payment dispute.
Oil prices continue to be undercut by the thaw in US-Russian relations and possible peace talks on the Russia-Ukraine war, which could eventually lead to reduced sanctions on Russia and the full resumption of Russian oil exports.
In a supportive factor for crude oil prices, the US on January 10 imposed new sanctions on Russia's oil industry that could curb global oil supplies. The measures targeted Gazprom Neft and Surgutneftgas, which exported about 970,000 bpd of Russian crude in the first 10 months of 2024, accounting for about 30% of its tanker flow, according to Bloomberg data. The US also targeted insurers and traders linked to hundreds of tanker cargoes. Weekly vessel-tracking data from Bloomberg showed Russian crude exports fell by -130,000 bpd to 3.09 million bpd in the week to February 2. Russian oil production fell to 8.062 million bpd in January, which was -16,000 bpd below its OPEC+ quota.
Crude oil demand in China has weakened and is a bearish factor for oil prices. According to Chinese customs data, China's 2024 crude imports fell -1.9% y/y to 553 MMT. China is the world's biggest crude importer.
An increase in crude oil held worldwide on tankers is bearish for oil prices. Vortexa reported Monday that crude oil stored on tankers that have been stationary for at least seven days rose by +6.9% w/w to 73.93 million bbl in the week ended February 28.
The consensus is that Wednesday's weekly EIA crude inventories will climb by +800,000 bbl, and gasoline supplies will fall by -750,000 bbl.
Last Wednesday's EIA report showed that (1) US crude oil inventories as of February 21 were -4.3% below the seasonal 5-year average, (2) gasoline inventories were -0.1% below the seasonal 5-year average, and (3) distillate inventories were -7.8% below the 5-year seasonal average. US crude oil production in the week ending February 21 was unchanged w/w at 13.502 million bpd, modestly below the record high of 13.631 million bpd from the week of December 6.
Baker Hughes reported last Friday that active US oil rigs in the week ending February 28 fell by -2 to 486 rigs, moderately above the 3-year low of 472 rigs posted on January 24. The number of US oil rigs has fallen over the past two years from the 4-1/2 year high of 627 rigs posted 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 is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
