Oil prices increase 2% as US supply tightens

[WORLD] Oil prices surged by 2% on March 12, 2025, as reports showed tighter-than-expected crude oil supplies in the United States. This uptick, driven by recent inventory reports and growing concerns over supply constraints, marks an important shift in the global oil market. With demand still on the rise and the U.S. stockpiles showing unexpected drawdowns, experts are now forecasting a period of price volatility.

The Key Drivers of Rising Oil Prices

On March 12, the price of Brent crude futures rose by $1.39, closing at $70.95 per barrel, while U.S. West Texas Intermediate (WTI) futures climbed by $1.43, reaching $67.68 per barrel. According to market analysts, this 2% increase is attributed to several key factors, with tighter U.S. oil supplies being the most significant. The latest data from the U.S. Energy Information Administration (EIA) revealed that U.S. crude inventories rose by only 1.4 million barrels over the past week. This was a much smaller increase than the expected 2 million barrels, signaling tighter-than-anticipated supplies.

"The oil build was smaller than expected, and gasoline and diesel draws were larger than expected," noted Josh Young, Chief Investment Officer at Bison Interests. "This evidences stronger demand and could see oil prices rise as a result." The data confirms that the demand for gasoline and distillates in the U.S. is not only resilient but potentially increasing, which is expected to keep upward pressure on oil prices.

Gasoline and Diesel Inventories Show Steep Decline

The more significant factor pushing oil prices higher is the rapid decline in gasoline inventories, which dropped by 5.7 million barrels, far exceeding analysts' expectations of a 1.9 million barrel reduction. Diesel stocks also experienced a sharp decline, further intensifying concerns over supply tightness.

For consumers, these supply chain constraints can directly affect the cost of energy at the pump, signaling potential increases in gasoline prices. The falling inventories suggest that refiners are either struggling to meet demand or facing logistical challenges in maintaining adequate stockpiles.

These developments highlight the disparity between global crude production and consumption. Despite the ongoing debate about global supply, U.S. consumption of refined products remains strong, signaling that the American market is far from oversupplied.

The Role of the U.S. Dollar in Oil Price Dynamics

Another key influence behind the oil price surge was the weakening of the U.S. dollar. The dollar index fell to a five-month low, contributing to the rise in oil prices. When the value of the dollar weakens, oil becomes cheaper for buyers using other currencies. As crude oil is priced in dollars, a weaker dollar enhances the purchasing power of foreign buyers, thus increasing demand.

Giovanni Staunovo, an analyst at UBS, observed, "In recent days, crude futures have been supported by a weaker U.S. dollar and the EIA moving away from earlier calls of strongly oversupplied oil markets this year." The depreciation of the dollar, combined with stronger-than-expected demand from the U.S., has had a significant bullish impact on the global oil market.

Geopolitical Risks and Market Sentiment

Despite the positive data surrounding the U.S. oil market, global risks continue to shape the outlook for crude oil prices. One of the primary concerns is the ongoing trade tensions, particularly the tariffs imposed between the U.S. and other key economies. The possibility of a slowdown in the global economy due to these trade disruptions could eventually dampen demand for oil.

Hassan Fawaz, Chairman and Founder of GivTrade, expressed caution, saying, "Fears of a U.S. recession, weakness in U.S. stock markets, and concerns over tariffs affecting key oil players such as China, introduced additional market uncertainty and these factors could continue to fuel a bearish sentiment, putting a lid on oil prices." If these concerns materialize, oil prices could face downward pressure despite the current bullish trends.

The Influence of OPEC on Oil Price Trends

As the global oil market continues to navigate this uncertainty, the Organization of the Petroleum Exporting Countries (OPEC) remains a crucial player. In its latest market outlook, OPEC projected continued growth in global oil demand. According to OPEC, demand is expected to remain robust in 2025, particularly in sectors such as air and road transport, which are key drivers of fuel consumption.

However, OPEC also acknowledged that geopolitical factors, such as the ongoing tariff disputes and other trade-related risks, will continue to influence market sentiment. "Trade concerns are expected to contribute to volatility as trade policies continue to be unveiled. However, the global economy is expected to adjust," OPEC noted in its report.

OPEC's positive demand forecast, alongside the supply constraints in the U.S., adds a layer of complexity to the oil price outlook. While the organization remains optimistic about consumption, it is cautious about potential disruptions caused by international trade conflicts.

Long-Term Outlook for Oil Prices

Looking beyond the immediate surge in oil prices, several factors could shape the long-term trajectory of the oil market. With U.S. supplies tightening, the prospect of rising fuel costs could become a key concern for both consumers and businesses. The continued decline in gasoline and distillate inventories signals that refiners may face difficulties in meeting demand, which could further tighten global oil markets.

Moreover, the broader economic environment remains uncertain. Fears of a recession in the U.S., compounded by trade uncertainties, could dampen global oil demand. As Fawaz cautioned, "The combination of recession fears and weak economic data could turn sentiment sour, which may cause a pullback in oil prices in the medium term."

The strength of global demand, particularly in emerging markets, will also play a significant role in determining whether oil prices continue to rise or plateau. As economies in Asia and Africa continue to expand, the demand for energy, including oil, is expected to grow. However, the pace of that growth could be affected by trade disruptions and inflationary pressures.

The 2% rise in oil prices on March 12, 2025, reflects a market at a critical juncture. While the U.S. oil supply situation and the weaker dollar provide bullish support, global economic uncertainties, particularly trade tensions and recession fears, pose significant risks. The situation is made even more complex by OPEC’s cautious optimism, as geopolitical factors could cause significant market volatility.

As oil prices continue to fluctuate in response to these variables, investors and consumers alike will need to stay alert to changing dynamics. The global oil market is poised for a period of heightened volatility, with supply tightness and economic risks providing contrasting forces that could either drive prices higher or lead to significant corrections in the coming months.