Oil has been on the decline, being heavily influenced by geopolitical events, policy changes, macroeconomic factors, and supply & demand changes. These factors have triggered uncertainty in the energy markets. Here’s a breakdown of the market developments affecting oil prices.
Geopolitical Events
Oil prices remain under pressure as traders are seeing progress toward the end of the Ukraine-Russia conflict.
President Trump intends to end the war quickly, with delegates from Russia and the US meeting in Turkey to continue discussing the solution to the conflict. The US and Ukraine have also agreed to a draft minerals deal that doesn’t include security guarantees or continued arms supply.
Traders view this as a positive step toward de-escalation, which could lead to the removal of sanctions on Russia. If sanctions ease, the Russian oil supply could increase, potentially placing more pressure on prices. ⁽¹⁾
Macroeconomic concerns caused by Trump’s tariff policies have also placed bearish sentiment on oil. Trump has imposed a 10% tariff on Chinese imports and 25% tariffs on imported aluminum and steel. Reciprocal tariffs were also threatened on Europe, including 25% tariffs on foreign cars, pharmaceuticals, and semiconductors, which are expected to be in motion by April. ⁽²⁾
These trade restrictions could weaken global economic activity, reducing industrial demand for oil. Investors fear slower economic growth may reduce energy consumption, leading to an oversupplied oil market.
Trump Cancels Chevron’s License in Venezuela
On Wednesday, February 26, President Trump announced that he was reversing a license given to Chevron to operate in Venezuela by his predecessor, Joe Biden, more than two years ago.
Chevron exports around 240,000 barrels per day of crude from its Venezuela operations, over a quarter of the country’s entire oil output.
Ending the license means Chevron will no longer be able to export Venezuelan crude. Oil ticked up slightly after the news was released as traders focused more on the Ukraine-Russia peace talks. ⁽³⁾
Supply and Demand Issues and Inventory Numbers
Crude oil demand from China, the world’s largest importer, has weakened, which added to bearish pressure on oil prices. Chinese crude imports dropped by 1.9% YoY in 2024, signaling slower demand growth, which could weigh on global oil prices. ⁽⁴⁾
Oil’s decline continued after Iraq’s oil minister said that Iraq had reached an agreement with Kurdistan to resume exporting crude via an oil pipeline through Turkey. However, the ministry said Iraq would remain within its OPEC production cap. Those pipeline shipments of about 185,000 bpd have been shut down for the past two years due to a payment dispute. ⁽⁵⁾
Meanwhile, a decline in crude oil inventory held on tankers provided small support for oil prices. The amount of oil stored in tankers fell by 12% week-over-week, reaching 65.65 million barrels in late February.
Additionally, OPEC+ announced it would maintain its oil production strategy, gradually restoring output starting in April, though it delayed the full production increase until September 2026. The latest EIA (Energy Information Administration) report showed mixed results, with crude inventories falling unexpectedly but gasoline and distillate stocks rising. ⁽⁶⁾
What’s the Outlook Like for Oil?
Despite the short-term recovery in oil prices following supply-side disruptions and policy changes, oil prices remain highly sensitive to economic data. Concerns about the potential for a slowdown in the global economy, particularly in the US, continue to weigh on oil markets. The tariff uncertainties and fears of declining consumer confidence will likely keep oil prices volatile in the near term.
