Oil prices fell for the fourth consecutive day due to a combination of factors, including concerns over U.S. tariffs, a surprising rise in U.S. crude stockpiles, and fears of increased supply from OPEC+. By 12:05 p.m. ET on Thursday, Brent crude for May delivery dropped 0.5% to $68.95 per barrel, marking its lowest level in over a year. Meanwhile, West Texas Intermediate (WTI) crude lost 0.7%, trading at $65.86 per barrel.
The Energy Information Administration (EIA) reported that U.S. crude inventories increased by 3.6 million barrels during the week ending February 28, well above analysts’ expectations of a 341,000-barrel rise. At the same time, gasoline and distillate inventories saw a decline. This rise in stockpiles added to the bearish sentiment in the market.
Ashley Kelty, an analyst at Panmure Liberum, pointed out that the recent tariff impositions by the U.S. on China, Canada, and Mexico had triggered retaliatory measures from those nations. These trade tensions raised concerns about a potential slowdown in global economic growth and its impact on energy demand.
This uncertainty has led to a sell-off in oil and gas stocks, with major companies like Exxon Mobil (-5.2%), Chevron (-5.4%), Occidental Petroleum (-8.0%), Marathon Petroleum (-9.6%), and Devon Energy (-7.7%) seeing notable declines. The Energy Select Sector SPDR Fund (XLE), a popular oil and gas benchmark, also dropped 6.6% over the past five trading sessions.
OPEC+ Plans to Gradually Reverse Output Cuts
OPEC+ countries, which had previously pledged additional output cuts in 2023, are set to gradually roll back those reductions starting in April. A statement on OPEC’s website confirmed that Saudi Arabia, Russia, the UAE, Iraq, Kuwait, Kazakhstan, Oman, and Algeria will unwind a 2.2 million barrel-per-day reduction. However, market fears regarding an impending surplus due to these additional barrels appear to be largely unfounded. OPEC emphasized that any increase in production could be paused or reversed based on market conditions, easing concerns among traders who had feared an inevitable surplus.
The statement also revealed that countries exceeding their production targets in 2024 will prioritize compensating for their overproduction. According to Standard Chartered, the increase in production targets for April will amount to just 135,000 barrels per day. Analysts suggest that this gradual adjustment is unlikely to create a significant surplus in the market, with a mild surplus expected in the fourth quarters of 2025 and 2026.
Robust demand growth and a slowdown in U.S. oil supply growth are expected to balance out the impact of OPEC+ output adjustments. U.S. crude oil production growth has significantly slowed in 2024, with a revised estimate of a mere 274,000 barrels per day increase. This follows a much larger 942,000-barrel increase in 2023. Looking ahead, U.S. output is expected to grow by just 231,000 barrels per day in 2025 and 66,000 barrels per day in 2026, according to Standard Chartered.
Bearish Outlook for Oil Prices
Despite these factors, the short-term outlook for oil prices remains bleak. Negative sentiment continues to dominate the market, and events like the annual London International Energy Week have reinforced this pessimistic view. Historically, such gatherings have often contributed to a self-reinforcing bearish outlook for the industry.
Chevron to Exit Venezuela Amid U.S. Sanctions
Chevron, one of the largest oil companies in the U.S., has received a 30-day notice from the Trump administration to wind down its operations in Venezuela by April 3. This is a sharp contrast to the usual six-month period given for such operations. Since 2022, Chevron has been allowed to operate in Venezuela under a special waiver, exporting crude oil to the U.S. Despite U.S. sanctions on the Venezuelan government, Chevron was the only major oil company permitted to continue operations in the country.
Venezuela’s oil production made up about 20% of its total output in 2024, with the country striving to reach a goal of 1 million barrels per day. However, critics, including U.S. Secretary of State Marco Rubio, argue that Chevron’s presence has been providing financial support to the regime of President Nicolás Maduro, which they claim helps suppress civil rights.
Despite this setback, Chevron remains confident in its ability to weather the storm. Last month, the company reported that it is well-positioned to increase its free cash flow by $6 billion to $8 billion by next year and reduce expenses by “a couple billion dollars.” This growth is expected to come from new and expanded oil production projects in Kazakhstan, U.S. shale, and the U.S. Gulf of Mexico.
Chevron is also focusing on increasing its oil production in the Gulf of Mexico. By 2026, the company expects to produce 300,000 barrels per day from the region, up from 200,000 barrels per day last year. Chevron’s recent deepwater field discovery in the Gulf of Mexico is expected to peak at 75,000 barrels per day, with more offshore projects planned.
Additionally, Chevron aims to close the gap with Exxon Mobil through its acquisition of Hess Corp. The $53 billion deal is expected to be completed, with Hess CEO John Hess expressing confidence that the merger will proceed smoothly.
Related Topics:
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- OPEC+ Increases Output for the First Time Since 2022, Shaking Up Markets
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