Oil, fundamental analysis

Absent any new geopolitical risk premium, crude markets this week focused on supply-side concerns resulting in a steady stair-step lower. This was a continuation of the downtrend that started in the prior week on the Trump threat of 100% tariff increases on Chinese imports. Also, a large drop in US refinery utilization led to another weekly crude inventory gain. Prices would fall below $60/bbl and continue lower towards the week’s end.

The US grade started the week as high as $60.17/bbl on Monday but never returned to above the critical $60.00/bbl mark. The low mark of $56.60/bbl was on Friday. The downturn continued to widen the technical area of 2-Standard Deviations from the 2-day Moving Average with the daily Lows straddling the lower limits.

Brent followed a similar pattern, hitting its high of $63.95/bbl on Monday and its weekly low of $60.15 on Friday. Both grades settled much lower week-on-week. The WTI/Brent spread has tightened to ($4.05).  WTI prices haven’t been this low since May 1. 

The continuing trade dispute between the US and China has added a dim outlook for global economic growth and, in turn, the outlook for future energy demand. However, market sentiment changes daily and the leaders of the two countries are expected to meet at the end of the month. But even that event seems doubtful should both sides maintain their hardline stances on trade.

The US government shut-down is also negatively impacting the economy each day it continues and as the Trump administration looks to furlough thousands. Additionally, layoffs in the thousands have been announced by oil majors due to the current unsustainable price levels.

A Trump-proposed meeting with Putin in another attempt to bring an end to the Ukraine war has added bearish sentiment given the increased Russian output that could occur. And, despite a few cracks, the Israel/Hamas ceasefire is holding thus far, which signals less geopolitical risk in oil markets.

Meanwhile, data from the International Energy Agency (IEA) in Paris only managed to further propel prices lower as the agency now sees oil supply growth of 3.0 million b/d for 2025 and growth of 2.4 million b/d for 2026 compared with its last forecast calling for growth of 2.7 million b/d and 2.1 million b/d, respectively. Demand is expected to increase but not even be close to the projected supply growth.

The Energy Information Administration’s (EIA) Weekly Petroleum Status Report indicated that commercial crude oil inventories for last week increased by 3.5 million bbl to a total of 424 million bbl largely on a huge drop in refining activity. The Strategic Petroleum Reserve was up 76,000 bbl to 407.7 million bbl. Total US oil production was 13.6 million b/d vs. 13.5 last year at this time.

Regional banking lenders reported loan losses Thursday with one large commercial loan allegedly granted to a fraudulent borrower, sparking concerns over other possible hidden risks in bank loan portfolios. Auto parts maker First Brands’ bankruptcy also hinted at problems with large C&I lending. And Pres. Trump’s fickle approach to tariffs, specifically with regards to China, has the stock market in a rollercoaster pattern of late.

All 3 major US stock indexes are higher week-on-week after last Friday’s huge drop on Trump’s Chinese tariff increase threat. The USD is also up this week, which tends to suppress oil prices as well.

Oil, technical analysis