WTI tops $70/Bbl before settling lower; logs third straight weekly gain
The WTI prompt-month contract settled at $69.36/Bbl on Friday, down 56c on the day, but briefly surpassed $70/Bbl for the first time since the beginning of March. This marked the third consecutive weekly gain for crude. One of the primary drivers of this week’s price was bullish inventory data. The American Petroleum Institute reported a 4.6 MMBbls draw in US crude stocks, which was later supported by EIA data showing a 3.3 MMBbls decline.
Geopolitical tensions also fueled volatility, as the Trump administration announced a 25% tariff on auto imports and proposed new fees targeting Chinese-built ships, a measure aimed at curbing China’s growing dominance in global shipbuilding and consistent with Trump’s escalating stance toward China. Both the enacted and proposed tariffs added another layer of uncertainty to global trade flows, with markets concerned the potential trade war could dampen global economic growth. In a related development, the administration proposed a 25% “secondary” tariff on countries importing Venezuelan crude and gas, largely targeting China and India’s purchases. In response, Venezuela ramped up exports to China to 400 MBbls, the highest monthly volume since 2023.
Meanwhile, a Black Sea ceasefire agreement between Russia and Ukraine ensured safe passage for commercial shipping, easing near-term risks to energy logistics in the region. The agreement signals potential progress toward a broader, long-term ceasefire.
Looking ahead, the oil market continues to navigate uncertainty around President Trump’s upcoming reciprocal tariffs, while OPEC remains in the background, preparing to bring supply back online next month. Despite WTI trending closer to $70/Bbl, AEGIS maintains a neutral view on prices, citing limited upside in the near term.
Crude Oil Factors
Geopolitical Risk Premium. (Bullish, Surprise) Conflict in the Middle East helped offset much of the bearish demand story in 2024. Although no crude flows were disrupted, fears of a wider conflict supported oil prices. With Israel and Hamas reaching a ceasefire agreement earlier in 2025, the amount of geopolitical risk premium in the market will likley come out. Any further escalation of conflict in the Middle East or Europe could lead to an increase in crude prices.
Speculator Positioning (Bearish, Priced In) Managed money or speculator positioning is at the most bearish level since 2023. According to CFTC data, speculators hold a net-long position of about 100k contracts in WTI, down from 250k in January. Speculators are almost always net long on WTI, although at times this position will fall to very low levels, indicating bearish sentiment. This factor could also be looked at as a bullish surprise, given that any bullish catalyst would likely see speculators pile back into the market.
OPEC Market Share War. (Bearish, Surprise) The possibility exists, albeit a small one, that should OPEC's efforts to bolster oil prices through production cuts prove unsuccessful, the cartel could potentially flood the market with additional barrels as a strategy to reset. OPEC has pushed its plan to unwind existing 2.2 MMBbl/d production cuts by two months. Now, starting in December, the unwind is set to gradually bring 180 MBbl/d of oil back into the market every month.
Oil/Product Inventories. (Bullish, Priced In) Crude inventories in the US remain low, although stocks have risen this year in-line with seasonal trends. Crude data is usually on a several-month lag. According to the February IEA report, OECD inventories were nearly 200 MMBbl below the five-year average as of December. The oil market has likely remained in a slight supply deficit since then, so inventories could be lower now, as evidenced by the backwardation in the forward curve.
OPEC+ Quotas. (Bullish, Priced In) On June 2, OPEC+ announced its extension of 3.66 MMBbl/d cuts through December 2025. Additionally, the 2.2 MMBbl/d voluntary cuts from eight member countries will continue into Q3 2024 but will start to be reversed in October at a rate of 0.18 MMBbl/d per month. OPEC+ members agreed on September 5 to delay a planned gradual 2.2 MMBbl/d supply hike by two months, shifting the start to December. The group will add 0.19 MMBbl/d in December and 0.21 MMBbl/d from January onwards, with an option to adjust or pause these hikes depending on market conditions. The cartel also reaffirmed its compensation cuts of 0.2 MMBbl/d per month through November 2025, as members such as Iraq, Russia, and Kazakhstan have struggled to meet their original production quotas.
AEGIS notes that the global crude market would quickly build inventories without OPEC's support in reducing supply.
OPEC Unwind/Compliance. (Bearish, Surprise) The new voluntary OPEC+ production cuts put member nations' adherence to quotas under scrutiny. Any deviation, such as halting, reversing, or exceeding their quotas, could end up being one of the surprise bearish factors weighing on the market. OPEC announced recently that it plans to begin restoring production in April. This decision took the market by surprise as OPEC has delayed this plan several times, citing weak market conditions. OPEC's current plan is to bring back about 140 MBbl/d each month until all 2.2 MMBbl/d is restored.
China Demand. (Bearish, Priced In) China's oil demand has been severely affected by a combination of economic weakness and electrification trends within the country. Continued weakness in China's real estate sector has led to slower economic growth. The Chinese government has responded with interest rate cuts and multiple stimulus packages. Electrification trends have also dampened oil demand growth, with the buildout of high-speed rail and LNG-powered trucks and busses impacting diesel demand. China is one of the most prolific adopters of electric vehicles, impacting gasoline demand. Some estimates show demand for transportation fuels in China peaking, but oil demand from China's petrochemical sector should continue for the next few decades.
USD (Bullish, Surprise) The US dollar index surged to multi-year highs toward the end of 2024. The dollar has since erased all post-election gains despite tariff fears being realized. Typically, a stronger dollar will have a negative impact on crude prices, while a weakening dollar will support prices.
Non-OPEC Production. (Bearish, Priced-In) Non-OPEC production remains a bearish risk to the market, as strong output from the US, South America, or Africa could result in more supply coming to the market than expected. Strong non-OPEC growth has been seen over the past few years, driven by the US, Brazil, and Guyana.
Ukraine-Russia Resolution. (Bearish, Surprise) A potential resolution to the Ukraine-Russia war could see some of the risk premium come out of the market. A leaked memo detailed a potential plan to resolve the conflict led by the US. Recent talks between Trump, Zelensky, and Putin seem to be working toward a ceasefire or resolution to the conflict. While physical oil flows have not been disrupted, a relaxation of sanctions on Russia could initially weaken crude prices.
Fed Policy. (Bearish/Bullish, Surprise) The Federal Reserve is not expected to be as aggressive with cutting interest rates in 2025, given recent stickiness in inflation. The weakness in equity markets has led to the bond market pricing in an additional rate cut in 2025, with a total of three cuts expected. Rate cuts should be supportive of oil prices by fostering economic growth and weakening the US dollar.
Trade War. (Bearish, Surprise) President Trump's tariffs and a possible trade war could weaken economic growth this year, hurting oil demand and prices. While tariffs on Canadian and Mexican energy could be a bullish factor for oil, broader tariffs on other industries stand to hurt economic growth. Tariff fears have led to a 10% decline in equity markets.
Projected Oversupply. (Bearish, Surprise) The IEA continues to anticipate an oversupplied market in 2025, although the level of oversupply has been moderated a bit in its latest outlook. Around the end of 2024, the IEA was anticipating about 1 MMbbl/d of oversupply, which has now fallen to about 0.4 MMBbl/d.
Trump/Iran/Venezuela. (Bullish, Surprise) The Trump administration wants to return to a maximum pressure campaign on Iran in an attempt to limit the country's revenues. Sanctions in 2018 were able to significantly reduce Irans exports. Chevron has been told to begin winding down its Venezuela operations as the US has revoked its permit to operate there. If a large amount of Iranian or Venezuelan oil is removed from the market, it could support oil prices.
Global Refining. (Bearish, Priced in) Refining margins have weakened in Europe and Asia, reducing run rates. This factor can hurt oil prices but is priced in.
Russian Supply. (Bullish, Surprise) Aggressive US sanctions targetting Russia's energy sector were announced earlier this year, leading to fears that a significant volume of oil could be removed from the market. Prior sanctions targeting Russia failed to remove any supply from the market, although Russia's revenues have been negatively impacted.
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