On March 5, global crude oil prices faced their third consecutive day of decline, primarily driven by the unexpected surge in U.S. crude oil inventories. Investors are increasingly anxious about potential output increases from the Organisation of Petroleum Exporting Countries and its allies (OPEC+) in April, alongside ongoing trade tensions stemming from tariffs imposed by former President Donald Trump against Canada, China, and Mexico. The market reacted sharply, with Brent crude futures dropping by $2.19 (3.1%), settling at $68.85 a barrel, while West Texas Intermediate (WTI) crude fell by $2.55 (3.7%) to reach $65.71 a barrel.
Concerns About Economic Growth
The recent fluctuations in oil prices are closely tied to economic indicators and geopolitical tensions. The Energy Information Administration (EIA) reported a significant increase in crude inventories—3.6 million barrels—pushing the total to 433.8 million barrels for the week, which surpassed analysts’ expectations. This build in crude stocks contributed to a bearish outlook for oil, prompting Brent crude to drop below the $70 per barrel threshold, marking a six-month low.
- Crude inventories: Increased by 3.6 million barrels.
- Brent crude: Fell to $68.85, a drop of 3.1%.
- WTI crude: Dropped to $65.71, down 3.7%.
Trade Tensions and OPEC+ Decisions
The escalation of tariffs has heightened worries about a downturn in economic growth, potentially dampening global energy demand. Following the imposition of tariffs, both Canada and China responded quickly with their own trade measures, while Mexican President Claudia Sheinbaum indicated a forthcoming response. Furthermore, OPEC+ announced plans to increase production by 138,000 barrels per day starting in April, the first production increase since 2022, which adds further pressure on crude prices.
- OPEC+ production increase: 138,000 barrels per day starting in April.
- Growth concerns: Tariffs have led to a perceived slowdown in economic activity.
U.S. Policy Impact on Oil Supply
In a significant move, the Trump administration also revoked a license previously granted to Chevron for its operations in Venezuela, potentially impacting the supply by 200,000 barrels per day. Analysts at Morgan Stanley suggest that while OPEC+ aims to unwind production cuts, they might implement gradual increases rather than a complete return to previous output levels.
Future Projections for Oil Prices
Given the current market conditions, analysts are predicting continued volatility in crude oil prices. Kaynat Chainwala, AVP of Commodity Research at Kotak Securities, noted that WTI crude recently dipped to $66.80, the lowest since mid-November. He emphasized that support levels for crude oil are around $67.00 to $66.40, with resistance expected between $68.25 and $69.00. Meanwhile, Rahul Kalantri, VP of Commodities at Mehta Equities Ltd., highlighted similar support and resistance levels in Indian Rupees.
- Support levels: $67.00 – $66.40.
- Resistance levels: $68.25 – $69.00.
As the global oil landscape continues to shift, market participants will be closely monitoring economic indicators and geopolitical developments that could influence future price trends.
