Last week, the international benchmark Brent Crude Oil Futures price suddenly broke the months-long silence, reaching the lowest point in three years. Right now, many oil price traders are struggling with the question: What exactly is happening in the international oil market? Will this round of sharp decline deepen further?
Last week, the international benchmark Brent Crude Oil Futures price suddenly broke a months-long silence, reaching a three-year low. Currently, many oil price traders are grappling with the question: what exactly has happened in the international oil market? Will this round of decline deepen further?
There is no doubt that various bearish factors intertwined, resulting in one of the worst oil market sentiments in history recently:
OPEC and its allies unexpectedly announced plans to increase production next month while oil prices approached $70 per barrel, changing the organization’s long-standing strategy of supporting high prices.
US President Trump continues to threaten the USA's largest trading partner with an 'erratic' trade war, which could weaken demand in the oil market.
In light of Russia's first indication of willingness to discuss a temporary ceasefire agreement regarding the Russia-Ukraine conflict with the US, geopolitical risks are also generally cooling.
Finally, the decline in demand from Asia is also leading to a relaxation of premiums for Middle Eastern crude oil, indicating that the long-term demand outlook for the oil market is unstable.
These factors combined caused the benchmark Brent Crude Oil Futures to briefly depart from the main trading range of $70 to $85, which has been in place since September of last year. Since a peak close to $80 in mid-January, US WTI Crude Oil has already dropped by 16%. Some speculators are also actively betting on the downward trend in oil prices, which is unlikely to end easily.
According to data from the US Commodity Futures Trading Commission (CFTC), in the week ending March 4, hedge funds reduced their total long positions in US Crude Oil by 2,266 contracts to 172,576 contracts, approaching the lowest level since 2010. Based on data from the European ICE Futures Exchange, the outright long bets on Brent Crude Oil futures also decreased by 41,583 contracts, marking the largest weekly decline since July of last year.
"Trump's stance on the energy market is clear: while he is pressuring OPEC to increase production, he is also engaging in behind-the-scenes negotiations aimed at easing the Russia-Ukraine conflict," wrote the commodity trading advisory firm Cayler Capital, which focuses on the oil market, in a letter to investors. "What is the end result? The oil industry shows a bearish tendency, with prices gradually declining amid ongoing uncertainty."
In addition to Trump's and OPEC's policies, another danger signal for the oil market comes from Middle East crude prices—after the US imposed sanctions on Russian and Iranian oil, this region was once the strongest area in the global oil market. However, as the panic buying of alternatives for sanctioned crude has subsided, the premiums of these crudes compared to the Dubai benchmark price have collapsed—among the main crude types favored by Asian buyers, the premium of Middle East Murban crude to Dubai crude has significantly narrowed.
Note: Murban crude, Oman crude, and Dubai crude are the three major benchmarks for oil prices in the Middle East.
Data shows that China's crude oil import volume in the first two months of this year decreased by approximately 5% year-on-year.
Meanwhile, with the increase in production, the price of light crude oil has also remained weak this year. Kazakhstan will increase oil exports this month after expanding one of the country's largest oil fields. More supplies outside of the OPEC+ alliance will also come online later this year, and the International Energy Agency even predicted before OPEC+'s recent actions that the oil market would experience an oversupply.
All of this is making Wall Street increasingly pessimistic.
Morgan Stanley currently expects the average price of Brent Crude Oil this year to be $70 per barrel, down $5 from its previous forecast; Goldman Sachs also believes there is a risk that oil prices could fall below their expected range of $70-85; JPMorgan became the first institution to suggest at last week's London Energy Conference that oil prices might drop to the $50 range; while Citigroup reaffirmed its pessimistic forecast of $60...
Is there still hope for the oil market?
So, does the current Crude Oil market really have no hope and is beyond saving?
This might not be the case. Many industry insiders believe there are still reasons that may indicate the further decline in oil prices could be limited, for example:
The Trump administration is continuing to threaten extreme pressure policies against Iran, with US Treasury Secretary Mnuchin recently stating the goal is to reduce the country's oil exports by more than 90%.
The USA has indicated plans to revoke Chevron's permit for extracting and selling Crude Oil in Venezuela, an action that could reduce market supply by 0.2 million barrels per day. The USA is also preparing to force more companies to exit the Venezuelan market.
With the Trump administration, which is tougher on Middle East issues than the Biden administration, the threat of renewed Israeli-Palestinian conflict is still looming.
The US Energy Secretary is seeking $20 billion in funding to replenish the Strategic Petroleum Reserve, which may also effectively boost Crude Oil demand.
Furthermore, a more critical question is: to what level will oil prices fall before impacting oil production?
Traders and Analysts report that during parts of last week, the trading of US oil contracts for next year's delivery fell to just over $60, a level unseen since 2023, which could threaten production growth. OPEC+ also reiterated that its actions could be 'paused or reversed based on market conditions.'
To date, the impact of Trump's economic policies has caused US stocks to drop about 6% from their historic highs less than three weeks ago. As US Consumer confidence recorded its biggest decline since 2021 at the end of last month, Brent Futures similarly fell, becoming one of the clearest signals of how tariff policies are causing turbulence in the broader financial market and affecting the crude oil market.
Many traders and analysts believe that this means the next moves for oil are no longer solely determined by supply policies—macroeconomic data from the USA and China may also become core factors driving the next phase of commodity trends.
"Tariffs suppress growth, and people are now worried about US economic growth," said Aldo Spanjer, Senior Analyst of Commodity Strategy at BNP Paribas. "This is a confirmation signal for all bears. And any bulls would not easily build positions at this moment."
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