Crude Oil (USOIL) Holds Above $71: Will Aramco's Pricing Boost Prices Despite Chinese Pressures?

(MENAFN- Investor Ideas) Investorideas, a go-to platform for big investing ideas releases market commentary from Rania Gule, Senior Market Analyst at XS - MENA

It seems that the oil market is experiencing high volatility, with crude oil prices fluctuating between selling pressures driven by rising U.S. inventories and trade tensions and the support provided by Saudi Aramco's decision to raise prices for Asian buyers. In my opinion, these mixed reactions create an environment of uncertainty, as investors attempt to balance the impact of various factors on price direction.

Saudi Aramco's decision to raise oil prices for March was driven by increasing demand in Asia, particularly from China and India, in addition to disruptions in Russian supplies due to U.S. sanctions. This move reflects the Kingdom's confidence in the continued strong Asian demand for oil, which could help support prices in the short term. Additionally, growing threats to supply, including the Trump administration's efforts to halt Iranian oil exports, could remove up to 1.5 million barrels per day from the market, increasing the likelihood of supply shortages and pushing prices higher.

On the other hand, data from the U.S. Energy Information Administration (EIA) painted a different picture, showing a sharp increase in crude oil inventories by 8.664 million barrels in the previous week, far exceeding expectations of a more moderate 2.6 million barrel rise. In my view, this significant stockpile increase signals weaker domestic demand in the U.S., adding downward pressure on prices. Furthermore, the rise in gasoline inventories raises concerns about slowing refinery activity, reflecting weaker consumption, which could weigh on oil prices soon.

Trade tensions between the U.S. and China also present another pressure factor on the market, as China imposed tariffs on U.S. crude oil, raising concerns about declining global demand. As the world's largest energy importer, any disruption in China's trade relations with the U.S. could lead to trade flow adjustments, potentially hurting American exports and negatively impacting prices. Moreover, the possibility of declining U.S. oil exports for the first time since the COVID-19 pandemic adds further uncertainty to market outlooks.

As a result, crude oil prices have seen volatile movements, rebounding after three days of losses to trade around $71.10 recently. However, gains have remained limited due to persistent pressures from rising inventories and trade tensions. On Thursday, prices continued to face downward pressure, dropping to around $71.00, reflecting the ongoing cautious sentiment in the markets.

I believe OPEC and its allies (OPEC+) also play a crucial role in determining the market's direction. Russian Deputy Prime Minister Alexander Novak indicated that the group has decided to proceed with its plans to increase production starting in April. This decision comes amid escalating tensions between the U.S. and Iran, as the Iranian president urged OPEC members to unite against potential U.S. sanctions. With the Trump administration resuming its "maximum pressure" campaign against Iran, we could see an escalation in geopolitical risks impacting oil markets.

Looking at the broader picture, I believe the oil market is battling supportive and bearish factors. On one hand, factors such as rising Asian demand, Aramco's price hikes, and supply threats from Iran and Russia could push prices higher. On the other hand, factors like increasing U.S. inventories, slowing domestic demand, and trade tensions with China may weigh on prices. Given this delicate balance, market volatility is likely to persist, with investors closely watching for any new developments that could determine the future direction of prices in the medium and long term.

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