Brent crude futures on the ICE surged nearly 2.6% on Tuesday, reaching their highest level since late April. The rally was driven by a weaker U.S. dollar and escalating concerns over new sanctions on Iranian oil exports.
A softer-than-expected U.S. Consumer Price Index (CPI) report helped ease fears of further interest rate hikes by the Federal Reserve, leading to a decline in the dollar. This provided broad support for commodities priced in dollars, including oil.
However, the primary catalyst behind the price jump was the threat of further U.S. sanctions on Iran. On Tuesday, the U.S. Treasury Department imposed sanctions on a network accused of facilitating Iranian oil shipments to China. Former President Donald Trump also signaled the possibility of even stricter measures should efforts to revive the Iran nuclear deal fail. Trump has repeatedly vowed to bring Iran’s oil exports down to zero—a scenario viewed as unlikely, but one that still leaves significant room for reductions. Iran currently exports around 1.6 million barrels per day. During the peak of U.S. sanctions reinstated by the Trump administration in 2018, Iranian exports dropped to an average of approximately 600,000 barrels per day in 2019.
A reduction in Iranian oil output could be welcomed by other OPEC+ members, as it would create space for them to increase production. All signs point to OPEC+ maintaining its aggressive supply strategy, though the group’s official production policy for July will not be revealed until June 1. While Trump has historically advocated for lower oil prices, which may align with OPEC+’s current expansion plans, any sharp price decline could have adverse effects on the U.S. oil industry by curbing drilling activity—something that may force policymakers to tread carefully.
In the latest inventory data, the American Petroleum Institute (API) reported an unexpected rise in U.S. crude stocks last week, with an increase of 4.29 million barrels, well above expectations of a 2 million barrel decline. Meanwhile, crude inventories at Cushing fell by 850,000 barrels, and gasoline and distillate inventories dropped by 1.37 million and 3.68 million barrels respectively. The U.S. Energy Information Administration (EIA) will release its official stockpile data later today. Also expected is OPEC’s monthly market report, which will provide updated forecasts for global oil supply and demand.
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