Low inventories reported today by the Energy Information Administration (EIA) did nothing to staunch the bleeding, with WTI getting gutted nearly 4% on the day, and Saudi rumors throwing another spanner in the works, while new U.S. economic data suggests more pain is in store for the sector.
“The supply side is also placing additional pressure on prices. Data from the American Petroleum Institute showed an unexpected increase of 3.8 million barrels in U.S. crude inventories, intensifying market fears of a structural supply surplus,” Gule pointed out.
Oil markets are bracing for the next big external shock as Trump’s trade war with China continues to escalate and talks of a potential nuclear deal with Iran threaten to bring fresh supply to markets.
On Monday morning, oil prices were recovering and traded up by about 1.5% following the weekend U.S. announcement that some electronics, including smartphones, would be exempted from the tariffs on China. Brent Crude prices traded at about $65 per barrel, while the U.S. benchmark, WTI Crude, was at just above $62 a barrel.
This points towards weaker oil demand going forward, although the prospect of U.S. action reducing Iranian oil exports played some counterbalancing role for prices. On Friday, Energy Secretary Chris Wright said the federal government was capable of halting oil exports from Iran. “We can follow the ships leaving Iran. We know where they go. We can stop Iran’s export of oil,” Wright said.
Trump’s threat of penalties on Russia has added to a more positive short-term outlook for prices, with key timespreads pointing to a tighter market and derivatives tied to the vital North Sea benchmark surging. At the same time, WTI briefly entered overbought territory on its nine-day relative strength index for the first time since Trump took office, signaling that the past three weeks’ rally may be set to pause
Uncertainty has been rife in oil markets of late as Trump’s trade wars threaten global demand just as OPEC+ is set to boost supply and Ukraine peace talks get underway.
The ramifications of the Biden administration’s sanctions on Russia’s shadow fleet continue to roil oil markets, with the Brent-Dubai spread traded on ICE Futures expanding to its widest since at least 2015.
The oil price rally that kicked off last week after the Biden administration announced the harshest sanctions yet on Russian oil has carried over into the new week. Brent crude for March delivery rose to above $82 per barrel this afternoon, while WTI crude for February delivery gained topped $80 per barrel.
Oil trading in 2024 was marked by the near complete dominance of algorithmic trading. While not a new trend, algo trading arguably reached its peak last year, with technical analysis largely displacing any factual fundamentals considerations. Instead of making traders money, however, algo trading has lost them money.