Oil prices dropped on Tuesday after a U.S. government agency forecast stable U.S. oil demand in 2025, while raising its supply forecast. However, the declines were limited by new U.S. sanctions targeting Russian oil exports to India and China.
Brent futures fell by $1.09, or 1.35%, to close at $79.92 a barrel. U.S. West Texas Intermediate (WTI) crude settled at $77.50 a barrel, down $1.32, or 1.67%.
On Monday, prices had surged by 2% following sanctions imposed by the U.S. Treasury Department on Friday. These sanctions targeted Gazprom Neft, Surgutneftegas, and 183 vessels that transport oil as part of Russia’s shadow fleet.
The U.S. Energy Information Administration (EIA) reported on Tuesday that U.S. oil demand would remain steady at 20.5 million barrels per day (bpd) in 2025 and 2026. The EIA also raised its domestic oil production forecast to 13.55 million bpd for the upcoming years, up from the previous forecast of 13.52 million bpd for 2024.
Phil Flynn, senior analyst at Price Futures Group, noted that markets were watching the EIA’s short-term energy outlook to see if a predicted supply increase would be reversed. “They’re waiting to see if the glut EIA predicted earlier is still in the forecast,” Flynn explained.
While analysts expected the new sanctions on Russia to impact oil supplies, the actual effect on the physical market may be less significant than anticipated. ING analysts suggested that the sanctions could eliminate the 700,000-bpd surplus they had initially forecast for 2024, but the real impact might be smaller. “The actual reduction in flows will likely be less, as Russia and buyers find ways around these sanctions,” they wrote.
Uncertainty around oil demand from China, a major buyer, could further lessen the impact of tighter supply. According to official data released on Monday, China’s crude oil imports fell in 2024 for the first time in two decades, excluding the COVID-19 pandemic period.
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