Crude oil prices rose to a three-week high amid growing concerns about supply disruptions and rising demand. However, technical analysts warn that oil markets may be overbought.
Crude oil prices extended gains in the Asian session on Wednesday, with Brent crude futures up 0.35% to $77.32 a barrel and West Texas Intermediate crude futures up 0.50% to $74.61 a barrel at 4:35 a.m. CET, both hitting their highest levels since Oct. 14 Planning to impose more sanctions on Russian oil exports before Donald Trump’s inauguration on January 20.
The price gains follow a roughly 1% gain in both benchmarks on Tuesday, underscoring how concerns about supply disruptions and rising winter energy demand have overshadowed broader economic uncertainty. Crude oil prices are on track for a third straight weekly gain after hitting three-year lows in early December
Stocks are off their lows today but are headed lower after yesterday’s -1% drop. Bond yields rose early in the morning but are moving away from their highs.
Potential supply disruptions due to geopolitical tensions
Rising concerns about tight supplies from Iran and Russia have boosted crude futures recently. The Biden administration is planning to impose more sanctions on Russian oil exports before Donald Trump’s inauguration on January 20.
The outgoing US administration will target tankers carrying Russian crude products priced above the $60 per barrel cap imposed by the US and its European allies. Trump plans to tighten restrictions on Iranian oil exports upon taking office, potentially disrupting supplies by as much as 1 million barrels per day — roughly 1% of global supply.
Oil prices rise on sanctions and supply impact
West Texas Intermediate crude futures rose yesterday on technical strength and more evidence that the effective implementation of US sanctions is affecting global supply. Reports emerged that Indian refineries lack up to 15 cargoes of Russian oil for January, while Chinese ports reportedly received instructions to avoid allowing access to and unload tankers sanctioned by the US for Iran and Russia.
It was also reported yesterday that there is a major backlog of 18 tankers now waiting to load Mexican crude. Pemex shut its oil platforms on Monday amid bad weather.
US Census data showed November crude oil exports at 4.334 million barrels per day – up +14% month-on-month and +9.2% year-on-year. 4.217 million barrels per day of exports were US-origin crude while 118,000 barrels per day were re-exports of foreign oil. Today, futures are up +0.49 [+0.66%] at 74.74
The macro environment is trading in uncertainty while the dollar is strong. The pound and euro are much weaker while the yen is slightly weaker. The Chinese yuan is also showing significant weakness.
The main driver of early morning trading today is a CNN article titled “Trump Considering Declaring National Economic Emergency to Allow New Tariff Program, Sources Say.” Traders should keep their heads in the air regarding the early morning reaction to this article – another Trump response that refutes the story could be in the cards. Yesterday’s session low was near Thursday’s settlement price (73.13).
Futures were higher during the US open with good buying volume at the open. The price tested the 74.45 level on the upside at the European close, but heavy selling met it and pushed futures back to levels seen at the US open, with a low of 73.82.
Oil pares gains on stronger dollar, tight supplies
Oil prices pared earlier gains on Wednesday as the dollar strengthened but continued to draw support from tighter supplies from Russia and other OPEC members and a drop in U.S. crude inventories.
Brent crude rose 32 cents, or 0.42 percent, to $77.37 a barrel by 1217 GMT. U.S. West Texas Intermediate crude rose 47 cents, or 0.63 percent, to $74.72. Both benchmarks rose more than 1 percent earlier in the session.
“The dollar’s safe-haven status is appreciated as concerns about renewed U.S. inflationary pressures grow,” said Tamas Varga, an analyst at oil brokerage PVM.
A stronger dollar makes oil more expensive for holders of other currencies.
Giovanni Staunovo, an analyst at UBS, said that the decline in oil prices appears to stem from a general shift in risk sentiment, with European equity markets falling and the dollar strengthening. Oil output from the Organization of the Petroleum Exporting Countries fell in December after two months of increases, a Reuters survey showed. Field maintenance in the United Arab Emirates offset higher Nigerian output and gains elsewhere in the group.
In Russia, oil output averaged 8.971 million barrels per day in December, below the country’s target, Bloomberg reported, citing the Energy Ministry.
U.S. crude inventories fell last week while fuel stocks rose, market sources said, citing figures from the American Petroleum Institute on Tuesday.
Varga added that despite the unexpected draw in crude inventories, the large build in product inventories is putting those prices under pressure.
Analysts expect oil prices to average lower this year than in 2024, partly due to higher output from non-OPEC countries.
