Oil prices gain strength as US stockpiles surprise on the downside

Oil prices edged higher on Thursday, with WTI price rising from $69.9 to $70.1 per barrel. If oil prices retreat, they may encounter support near $66.2 per barrel, while resistance may be found near $70.6 per barrel.

US crude oil inventories released on Wednesday showed an unexpected drop in US crude stockpiles, boosting oil prices. The US Energy Information Administration reported a weekly crude stockpile draw of 3.3M barrels for the week to March 21, against expectations of a rise by 1.5M barrels and following a rise by 1.7M barrels the week before

US President Donald Trump has been using threats of imposing trade tariffs as a negotiation tool to further his agenda with other countries. Trump has threatened to impose reciprocal tariffs on many countries, which would raise US import taxes to match those imposed by the country’s other trading partners.

Trump’s tariffs may spark global trade wars and are causing turmoil in markets. Trump issued an executive order on Monday to impose secondary tariffs of 25% on all imports from countries buying Oil from Venezuela starting April 2. The secondary tariffs will come in addition to direct tariffs on Venezuelan oil exports, raising supply concerns and boosting oil prices.  

On Thursday, Trump announced that he will postpone tariffs for automobile parts. According to Reuters, automobiles will be subject to the 25% tariff after April 2, but tariffs on automobile parts will be delayed for up to a month.

Oil prices have been volatile due to geopolitical instability. Hostilities in the Gaza area have been resumed, breaking the ceasefire deal between Israel and Hamas. On the other hand, Russia and Ukraine agreed to stop attacking each other’s energy infrastructure for 30 days. The ceasefire deal includes attacks on oil ships in the Black Sea. In addition, the US has agreed to lift some of the sanctions against Russia, putting pressure on oil prices.

OPEC+ has issued a new production plan to compensate for overproduction, boosting oil prices. OPEC’s new plan will be applied to seven of its member nations and will involve monthly oil production cuts, ranging between 189k barrels/day and 435k barrels/day.

Oil prices are kept in check by high central banks’ interest rates. The US Federal Reserve kept interest rates unchanged at its policy meeting in March. FOMC policymakers voted unanimously to maintain the federal funds rate to a target range of 4.25% to 4.50%. Markets are pricing in two more rate cuts this year, with the first rate cut in June, while a third rate cut is also considered possible.

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Written by:
Myrsini Giannouli

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