Price Performance Summary

Week One: At the beginning of the first week, Trump pressured the Fed to cut interest rates and threatened to fire Chairman Powell, triggering concerns over Fed independence and pressuring both equity and oil markets. Later, Trump clarified that he had no intention of dismissing Powell and signaled a potential reduction in tariffs on China, which helped stabilize market sentiment and lift oil prices. Mid-week, several OPEC+ countries called for increased production in June, dashing hopes for compensatory cuts. Coupled with an EIA inventory report that missed expectations, oil prices dropped sharply before stabilizing by week's end.

Week Two: In the second week, the market remained under pressure from dual concerns over U.S. tariff uncertainty and anticipated OPEC+ supply expansion. Saudi Arabia later declared its ability to sustain low oil prices over the long term, effectively confirming earlier rumors of a June production hike. Heightened concerns about oversupply weighed on prices despite a better-than-expected EIA inventory report, with WTI hitting new post-pandemic lows. Toward the end of the week, Trump’s renewed threat of secondary sanctions on buyers of Iranian oil added short-term supply concerns, prompting a slight rebound. Nonetheless, prices ended the two-week period down about 9%.

Crude Oil Data Update

Crude Inventories Continue to Rise; Refined Product Demand Remains Strong

Over the past two weeks, U.S. commercial crude inventories fell by 2.5 million barrels, outperforming expectations. Meanwhile, the Strategic Petroleum Reserve added 1.5 million barrels amid heightened global uncertainty and falling oil prices. On the supply side, the active U.S. rig count dropped by one, indicating that shale drillers remain cautious in a lower-price environment. Refinery utilization surged by 2.3 percentage points, likely reflecting pre-emptive imports during the tariff grace period and seasonal restocking ahead of the driving season. On the demand side, gasoline inventories fell sharply by 9.5 million barrels, marking eight consecutive weeks of decline and signaling robust end-user demand. Distillate inventories also declined by 1.4 million barrels, suggesting strong product demand despite the seasonal lull.

Global Market Developments

OPEC+ Accelerates Output Increases

Despite weakening prices and softening demand expectations, OPEC announced at its May 3 meeting that it would increase production by 411,000 barrels per day in June—three times the originally planned volume. The group also stated it would not cut production simply to maintain high prices, further fueling concerns of a global oversupply. Additionally, Saudi Arabia is pushing OPEC+ to fast-track the lifting of earlier output curbs in order to penalize Iraq and Kazakhstan for exceeding their quotas.

Under these circumstances, oil prices dropped sharply. While U.S. shale producers face profitability pressure, their breakeven costs remain significantly lower than the fiscal breakeven levels of OPEC nations. The potential for a renewed price war between the two major oil-producing blocs—each vying for market share—has emerged as a key market risk.

Commentary

The current upward momentum in oil markets remains weak, largely due to OPEC+’s aggressive production plans. While reduced U.S. tariff uncertainty and geopolitical tensions between the U.S. and Iran offer brief support, markets appear more sensitive to supply-side shocks. In the short term, oil prices are likely to trend downward with heightened volatility. Over the medium term, the real economic impact of tariffs may weigh on U.S. fundamentals and crude demand. In the long run, energy transition efforts and carbon neutrality goals are expected to cap global crude demand growth, leaving the long-term oil price outlook tilted to the downside. Key variables to monitor include U.S. trade negotiations, developments in U.S.-Iran relations, competition between major producers, and U.S. macroeconomic data and its impact on demand.

Summary

The negative impact of U.S. tariff uncertainty on oil markets has notably eased, shifting investor focus toward supply-side pressures. The latest aggressive production stance by OPEC+ has significantly heightened fears of oversupply, likely keeping oil prices under downward pressure in the near term. Going forward, close attention should be paid to U.S. trade talks, geopolitical developments in the Middle East, and economic indicators that may affect global crude demand.