Crude Prices Climb as a Stock Rally Boosts Market Sentiment

June WTI crude oil (CLM25) Thursday closed up +1.03 (+1.77%), and June RBOB gasoline (RBM25) closed up +0.0315 (+1.56%).

Crude oil and gasoline prices recovered from early losses on Thursday and posted moderate gains.  Short covering emerged in crude oil Thursday after US stocks rallied sharply, which boosted risk-on sentiment in the asset markets.   Also, the possibility of additional sanctions on Russian crude is lifting oil prices after US Senator Graham said he has “broad support” for a bill that would enact new sanctions on Russia and tariffs on countries that buy its oil if Russian President Putin doesn’t engage in serious negotiations to end the war in Ukraine.

Gains in crude oil accelerated Thursday afternoon when President Trump said any country that buys any amount of oil or petrochemicals from Iran will be subject to secondary sanctions immediately and “they will not be allowed to do business with the US in any way, shape, or form.”

Crude prices Thursday initially fell to a 3-week low after the dollar index (DXY00) rallied to a 2-1/2 week high.  Also, concerns about a global glut of crude oil are weighing on prices after Reuters reported Wednesday that Saudi Arabian officials have told allies and industry experts that it can endure a sustained period of depressed prices.

Additional sanctions on Russian crude may curb global oil supplies and support crude prices.  US Senator Graham said he has support from 72 senators for a bill that would enact “bone-crushing” new sanctions on Russia and include a 500% tariff on imports from countries that buy Russian crude, petroleum products, natural gas, uranium, and prohibit US citizens from buying Russian sovereign debt.

Fears about the oversupply of crude are bearish for prices after Reuters reported Wednesday that Saudi Arabia said it could withstand a period of depressed oil prices, bolstering fears of a prolonged period of higher production from the OPEC+ alliance.  Last Wednesday, Reuters reported that several OPEC+ members would suggest accelerating oil output hikes in June for a second consecutive month.  Saudi Arabia could boost its crude production to reduce crude prices and punish those OPEC+ members that produce above their assigned limits, further flooding the global markets with crude.  OPEC+ members will meet on May 5 to discuss the June output plan.

The US and Iran reported progress in talks over the weekend on a deal over Iran’s nuclear program, with negotiators from both sides agreeing to meet again in Europe this week.  Any agreement on Iran’s nuclear program could prompt the US to remove export restrictions on Iranian crude oil, which would boost oil supplies on the global market and be bearish for crude prices.  

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 +34% w/w to 90.73 million bbl in the week ended April 25, the highest in 9 months.

Crude prices have a negative carryover from April 3, when OPEC+ said it would boost crude production in May by 411,000 bpd, much more than the +138,000 bpd of crude production it added this month.  OPEC+ is boosting output to reverse the 2-year-long production cut, gradually restoring a total of 2.2 million bpd of production.  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 Apr crude production fell -200,000 bpd to 27.24 million bpd.

Stronger crude demand in China, the world’s largest crude importer, supports oil prices.  Reuters reported earlier this month that China’s Mar crude imports rose to 12.1 million bpd, the highest since August 2023.

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.  Russian oil product exports in March rose to a 5-month high of 3.45 million bpd, according to data compiled by Bloomberg from analytics firm Vortexa.  Weekly vessel-tracking data from Bloomberg showed Russian crude exports rose by +40,000 bpd w/w to 3.39 million bpd in the week to April 27.

Wednesday’s EIA report showed that (1) US crude oil inventories as of April 25 were -6.6% below the seasonal 5-year average, (2) gasoline inventories were -3.9% below the seasonal 5-year average, and (3) distillate inventories were -11.9% below the 5-year seasonal average.  US crude oil production in the week ending April 25 was unchanged w/w to 13.465 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 April 25 rose +2 to 483 rigs, moderately above the 3-1/4 year low of 472 rigs posted on January 24.  The number of US oil rigs has fallen over the past two years from the 5-year high of 627 rigs posted in December 2022.

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