Crude oil rebounds from nearly 4-year low as geopolitical tensions rise

Crude oil prices recovered amid volatility after touching their lowest levels since November 2021 last Monday, driven by escalating geopolitical tensions in the Middle East and China’s intensified efforts to boost consumption. After hitting these periodic lows, crude oil prices stabilized slightly above the previous week’s levels, signalling prolonged volatility and a likelihood of similar trends continuing in the short to medium term.

According to Polymerupdate Research, Brent crude futures for near-month delivery on the InterContinental Exchange (ICE) dropped to a 3¾-year low of US$ 69.28 a barrel on Monday—the lowest since November 30, 2021—from US$ 70.36 a barrel the previous day, primarily due to extended profit booking by traders. Many traders and stockists engaged in short-selling amid fears that import tariffs imposed by US President Donald Trump on partner countries could negatively impact global economic growth and, consequently, energy demand. However, Brent crude futures recovered during the rest of the week, closing flat at US$ 70.58 a barrel on Friday, with a marginal weekly gain of 0.31 percent, or US$ 0.22 a barrel.



Similarly, West Texas Intermediate (WTI) Cushing futures for near-month delivery on the New York Mercantile Exchange (Nymex) fell to US$ 66.03 a barrel on Friday—their lowest since November 2021—down from US$ 67.04 a barrel at the previous close. This decline was attributed to global trade demand uncertainties, the US President’s plans to increase domestic output, and the Organisation of Petroleum Exporting Countries and allies (OPEC+) decision to raise production starting in April. The additional output is expected to exacerbate an already oversupplied global market. Despite the decline, WTI Cushing futures traded within a narrow range for the rest of the week, ending at US$ 67.18 a barrel, with a marginal weekly gain of 0.21 percent, or US$ 0.14 a barrel.

An analyst at Reliance Securities Ltd commented, “Crude oil prices closed moderately higher last week, supported by a weaker dollar and tighter US sanctions on Russia, which are making it more challenging for the Kremlin to finance its crude oil trade, potentially tightening global oil supplies. Oil prices also found support in US-imposed sanctions on Iran’s oil minister and tepid Russian backing for a ceasefire, indicating the ongoing war and sanctions on Russia will persist for now. However, bearish fundamentals were also present. Markets remain concerned that US tariffs and counter-tariffs could curb global growth and, in turn, reduce energy demand.”

Escalating geopolitical conflicts
United States President Donald Trump ordered large-scale military strikes against Yemen’s Iran-backed Houthis on Saturday, resulting in at least 31 deaths and dozens of injuries. The strikes followed the group’s attacks on several merchant ships in the Red Sea, which disrupted global sea-borne trade and prompted shipping companies to divert voyages along longer, costlier routes. While targeting the Houthi pirates, Trump vowed to prevent further aggression, warning that “hell will rain down” on the Houthis if they continue to attack merchant ships and threaten American interests.

“To all Houthi terrorists, your time is up. I have ordered the United States military to launch a decisive and powerful military action against the Houthi terrorists in Yemen. They have waged an unrelenting campaign of piracy, violence, and terrorism against American and other ships, aircraft, and drones. (Trump’s predecessor) Joe Biden’s response was pathetically weak, so the unrestrained Houthis just kept going. It has been over a year since a US-flagged commercial ship safely sailed through the Suez Canal, the Red Sea, or the Gulf of Aden. The last American warship to transit the Red Sea, four months ago, was attacked by the Houthis more than a dozen times. Funded by Iran, the Houthi thugs have fired missiles at US aircraft and targeted our troops and allies,” President Trump stated in a post on ‘X’ (formerly Twitter).

Meanwhile, Russia-Ukraine ceasefire talks have caused fluctuations in global markets, although a resolution seems distant. U.S. sanctions on Russian energy exports and reduced Chinese crude imports from Russia are further disrupting global supply chains. Additionally, ongoing tensions involving Iran and other Middle Eastern producers remain a significant wildcard. Separately, Israel has continued missile strikes on Hamas targets in Gaza, Palestine, in an effort to dismantle militant operations.



Supply-demand concerns
Meanwhile, OPEC+ maintained its forecast for robust oil demand growth in 2025, projecting an increase of 1.45 million barrels per day (bpd), driven by sustained air and road travel. Libya has contributed to the supply-side narrative by resuming production at the Mabruk oilfield after a decade-long halt, with plans to ramp up output to 25,000 bpd. Continuing some policies from former U.S. President Joe Biden, the Trump administration has warned of additional sanctions on Russia in response to its ongoing military offensive in Ukraine.

The International Energy Agency (IEA) predicts that global oil demand growth will accelerate to just over 1 million bpd in 2025, up from 830,000 bpd in 2024, reaching a total of 103.9 million bpd. Asia is expected to account for nearly 60 percent of this growth, led by China, where petrochemical feedstocks will drive the entirety of the demand increase.

Global crude oil supply rose by 240,000 bpd in February, reaching 103.3 million bpd, largely due to contributions from the Organisation of the Petroleum Exporting Countries (OPEC+). Although the actual supply boost from the gradual unwinding of OPEC+ production cuts in April may be less than the nominal 138,000 bpd increase, global oil supply is already trending upward.

Canada, a major energy supplier to the United States, has challenged U.S. President Donald Trump by threatening to restrict crude oil exports to the world's largest economy. This move comes in response to Washington's imposition of import tariffs on Canadian goods. In a stern warning to the United States, Canada’s Energy Minister, Jonathan Wilkinson, suggested that retaliatory measures, including tariffs, were under consideration for imports from the U.S.

“When we talk about non-tariff retaliation, it could involve restricting supply, imposing export duties, or targeting specific sectors such as energy and materials. The scope could even extend to critical minerals, potentially increasing U.S. reliance on China. Everything is on the table,” Wilkinson said in response to a media query.

China’s consumption boost
Less than a week after the Two Sessions meeting, the Central Committee of the Communist Party of China and the State Council released a ‘special action plan’ outlining key strategies to boost consumption. Divided into eight major themes, the plan addresses several challenges faced by Chinese households.

The Two Sessions underscored that boosting consumption has become a top priority, making it the first of the main work tasks outlined for 2025. While the plan provides few new specifics on how the government intends to increase spending, it reflects a stronger determination to address China’s consumption challenges this year.

Outlook
Goldman Sachs lowered its price forecast by US$ 5 a barrel to US$ 71 a barrel in its latest update compared to US$ 76 a barrel projected in its December 2024 report, citing tariffs and OPEC+ production increases as downside risks. However, the bank predicted a modest short-term price recovery driven by resilient US economic growth and ongoing sanctions on Russia.

International crude prices opened solidly higher in Monday’s Asian trade after China, the world's largest oil importer, announced new measures to boost consumption. Additionally, crude prices received support from diminishing prospects of a swift end to the Ukraine war, which would otherwise potentially increase Russian energy supplies to Western markets.


DILIP KUMAR JHA
Editor
dilip.jha@polymerupdate.com