Oil prices declined for the fourth consecutive day amid Trump’s tariff tantrum, U.S. crude oil stocks posting a larger-than-expected build and worries about a looming return of more OPEC+ barrels to the market. Brent crude for May delivery fell 0.5% to $68.95 per barrel at 12.05 pm ET on Thursday, the lowest level in more than a year, while WTI crude sank 0.7% to change hands at $65.86 per barrel. U.S. crude stocks rose more than expected in the week ending February 28, while gasoline and distillate inventories fell, the Energy Information Administration reported. Crude inventories rose by 3.6 million barrels to 433.8 million barrels in the week, far exceeding analysts' expectations for a 341,000-barrel increase.
"The imposition of tariffs on China, Canada and Mexico by the U.S. sparked swift reprisals from each nation that increased concerns over a slowdown in economic growth and the consequent impact on energy demand," Ashley Kelty, an analyst at Panmure Liberum, said.
Not surprisingly, oil and gas stocks are selling off again, including Big Oil stocks Exxon Mobil Corp. (NYSE:XOM) which has returned -5.2% over the past week; Chevron Corp. (NYSE:CVX) -5.4%, Occidental Petroleum (NYSE:OXY) -8.0%, Marathon Petroleum Corp. (NYSE:MPC) -9.6% and Devon Energy (NYSE:DVN) -7.7%. Meanwhile, the popular oil and gas benchmark, Energy Select Sector SPDR Fund (NYSEARCA:XLE), has returned -6.6% over the past five trading sessions.
The eight OPEC+ countries that pledged additional voluntary output reductions in 2023 have announced that they will proceed with their plan to gradually roll back the reductions. A statement posted on OPEC's website on Monday revealed that Saudi Arabia, Russia, the United Arab Emirates, Iraq, Kuwait, Kazakhstan, Oman and Algeria will start unwinding a 2.2 million barrel per day cut from April. However, a lot of ongoing fears about a potential surplus building up as OPEC+ adds more barrels appears largely unwarranted. The press release stressed that the return of oil “may be paused or reversed subject to market conditions,” easing fears among traders who previously viewed the return of more barrels to the markets as a foregone conclusion.
The statement revealed that those countries that produced above the target in 2024 will front-load their compensation plans. According to Standard Chartered, the m/m increase in targets in April amounts to just 135 thousand barrels per day. The increase could even be lower due to a potential offsetting effect of an acceleration in the payback of past over-production. The analysts have reported that current market balances imply that the unwind is unlikely to produce any significant surplus, with a mild surplus expected in Q4-2025 and Q4-2026.
Meanwhile, robust demand growth and a continued slowdown in U.S. oil liquids supply will create room for the cuts to be unwound. U.S. oil supply growth slowed significantly in 2024, with revised data showing U.S. crude oil output averaged 13.208 mb/d, good for a mere increase of 274 kb/d y/y following the 942 kb/d increase seen in 2023. StanChart has predicted that U.S. crude oil output will slow further to 231 kb/d in 2025 and just 66 kb/d in 2026.
Still, oil prices are likely to remain in the doldrums in the near-term due to the overwhelmingly bearish sentiment pervading oil markets. For instance, the annual London International Energy (IE) Week accentuated the negative in terms of the oil market outlook. In previous years, the mood of the week has more often than not been self-reinforcing.
Chevron To End Venezuela Operations
Chevron has received a 30-day notice from the Trump administration to wrap up its operations in Venezuela. The deadline, set for April 3, provides the company only 30 days instead of the normal six-month wind-down period. Since 2022, Chevron has been allowed to operate in Venezuela as an exception to U.S. sanctions, exporting crude to the United States. According to Secretary of State Marco Rubio and other foreign-policy hawks, Chevron has been providing a financial lifeline for Maduro’s regime to enrich itself and suppress civil rights. Venezuela produced about 20% of Venezuela’s oil in 2024, close to Maduro’s goal of 1 million barrels per day. Chevron is the only major oil producer with a waiver to operate in Venezuela despite Washington’s sanctions against President Nicolás Maduro’s regime.
But Chevron will likely be okay. Last month, the oil and gas major reported that it’s well positioned to grow free cash flow by $6 billion to $8 billion by next year, and lower expenses by "a couple billion dollars." America’s second largest oil and gas company expects to achieve these results thanks to the start of new or expanded oil production projects in Kazakhstan, growth in U.S. shale and offshore U.S. Gulf of Mexico.
Chevron has projected oil production growth in the Gulf of Mexico to clock in at 300,000 barrels per day by 2026, up from 200,000 last year. Back in August, Chevron produced its first oil from a pioneering U.S. Gulf of Mexico deepwater field under extreme pressures. The field is expected to produce up to 75,000 barrels of oil per day at its peak, with the company lining up two more offshore projects.
Meanwhile, Chevron is looking to close the gap between it and Exxon Mobil Corp. (NYSE:XOM) through the acquisition of Hess Corp. (NYSE:HES). Hess CEO John Hess says he's "very confident" that the company's planned $53 billion sale to Chevron will be completed.
"We're very confident that the merger is going to go through and we're getting prepared for that," Hess said at the Goldman Sachs Global Energy, Clean Technologies & Utilities Conference.
By Alex Kimani for Oilprice.com
