Oil prices continue falling sharply, defying expectations set by persistently low U.S. inventories. West Texas Intermediate (WTI) dropped nearly 4% today.
The Energy Information Administration (EIA) reported the widest U.S. inventory deficit in 20 months, yet market sentiment remains bearish. As of this week, crude, distillate, and gasoline stocks sit 47.4 million barrels below the five-year average.
Despite this tightness, oil prices continue falling. Standard Chartered’s proprietary bull-bear index has stayed “highly bullish” for the third consecutive week, highlighting the market’s puzzling behavior.
Saudi Arabia Pushes Production as Oil Prices Continue Falling
Saudi Arabia is reportedly preparing to push for higher output at the May 5 OPEC+ meeting. The kingdom believes it can withstand lower prices longer, intensifying downward pressure on prices.
Three weeks ago, eight OPEC+ members agreed to unwind voluntary cuts and boost production by 411,000 barrels per day starting in May. This announcement immediately raised oversupply concerns and undermined market confidence.
Trump Tariffs Disrupt Demand, Fueling the Price Drop
U.S. tariff policy is adding pressure. The government recently announced new tariffs on over 90 countries, stirring uncertainty across global trade.
Crude demand outlook has worsened, with fears of reduced industrial activity growing. The latest U.S. economic report shows a 0.3% contraction in Q1 2025, compared to 2.4% growth in Q4 2024.
Analysts point to panic stockpiling ahead of Trump’s 90-day tariff pause expiration as a major factor behind the sudden reversal.
OPEC+ Fractures Widen with Rising Output from Kazakhstan and Iraq
Kazakhstan’s crude output soared to 2.12 million barrels per day in February, far above its OPEC+ quota. The government’s inconsistent messaging about future cuts has weakened trust among OPEC+ members.
Standard Chartered warns that Kazakhstan’s actions may trigger a chain reaction, pushing others to abandon restraint if demand softens.
Iraq is also increasing production. With both countries adding barrels, internal OPEC+ cohesion may falter further, pushing prices down despite low inventories.
Futures Signal Weak Demand as Oil Prices Continue Falling
Brent futures remain narrowly backwardated, signaling weak short-term demand despite tight physical conditions.
This trend defies conventional expectations. Typically, tight inventories would support rising prices. But the current drop points to deep-seated concerns.
According to Standard Chartered, this divergence reflects how U.S. economic policy and OPEC+ instability are now driving the market more than supply fundamentals.
