Crude Oil Slips Despite Geopolitical Tensions as Inventories Surge
🛢️ Market Summary
The crude oil inventory report for May 2025 showed a surprise buildup, weighing on energy prices despite escalating geopolitical tensions. On Wednesday, July WTI crude oil (CLN25) closed down $0.46 (-0.74%) at $61.93, while July RBOB gasoline (RBN25) closed slightly higher, up $0.0003 (+0.01%). Crude prices briefly rallied to a one-month high but reversed sharply after the weekly EIA report showed a surprising buildup in inventories, reaching a 10-month high.
📈 Mixed Drivers: Geopolitics vs. Inventory Pressure
Crude oil initially gained on news that U.S. intelligence indicated Israel might be preparing for a potential strike on Iranian nuclear sites. Meanwhile, Iranian Supreme Leader Khamenei dismissed diplomatic progress, stating that he doesn’t believe talks with the U.S. will succeed. President Trump echoed this sentiment, warning that Iran could face “something bad” if it rejects the latest proposal.
These geopolitical concerns were offset by Wednesday’s EIA report, which showed:
- Crude inventories +1.33 million bbl (vs. -1.1 million draw expected)
- Gasoline inventories +816,000 bbl (vs. -2.0 million draw expected)
- Distillate inventories +579,000 bbl (vs. -1.4 million draw expected)
🏭 Supply Trends and Sanctions
The market remains caught between rising stockpiles and tightening global supply chains. The U.S. recently sanctioned Sepehr Energy Jahan Nama Pars, a front company linked to Iranian oil exports. These sanctions aim to cut off funding for weapons development and militant proxies.
Russia also remains in focus. Weekly data shows a drop in Russian crude exports by 90,000 bpd to 3.4 million bpd, while oil product exports in March hit a 5-month high of 3.45 million bpd.
🚗 Demand Outlook: Gasoline and Travel
Gasoline demand may offer a short-term floor for crude prices. According to AAA, 39.4 million Americans are expected to travel by car this Memorial Day weekend—up 3.1% from last year—fueled by gas prices that are 50 cents per gallon cheaper than a year ago.
However, a weaker crack spread (profit margin between crude and refined fuels) is discouraging refiners from stepping up purchases, posing a bearish drag on crude demand.
📊 Crude Oil Inventory Report – May 2025: Production & Rig Counts
U.S. crude production held steady last week at 13.392 million bpd, just shy of December’s record high. Meanwhile, the Baker Hughes rig count fell by 1 to 473 rigs, hovering just above the 3¼-year low set in January. Over the past two years, the rig count has dropped from a 5-year high of 627 rigs (December 2022).
The EIA report also highlighted inventory levels compared to the 5-year seasonal average:
- Crude: -5.6%
- Gasoline: -2.2%
- Distillates: -16.1%
🌍 OPEC+ Adds Pressure
OPEC+ recently approved an output increase of 411,000 bpd starting in June. Saudi Arabia has indicated that additional supply boosts may follow, targeting overproducing members such as Iraq and Kazakhstan. Though the bloc had planned to restore supply by late 2025, the timeline now extends to September 2026.
That said, OPEC+ output in April still dropped 200,000 bpd to 27.24 million bpd, indicating short-term tightening despite broader easing plans. Additionally, floating storage ticked higher, with Vortexa reporting a 3.1% w/w rise in stationary tanker crude to 90.97 million bbl.
Prepared by Paradigm Futures. All charts and figures sourced from EIA, AAA, and Vortexa.
