Crude Oil Market: Volatility Amid the Overhang of Supply Surplus and Geopolitical Games​

During the crucial trading week from March 3rd to March 10th, the international crude oil market was like a stormy sea, showing extremely volatile trends, which tugged at the nerves of global investors and industry practitioners.​

In terms of futures price performance, the WTI April crude oil futures recorded a cumulative decline of 3.9% during this trading week, while the Brent May crude oil futures also had a significant drop of 3.4%. It is worth noting that this decline is not accidental but has continued the downward trend that started in mid-December 2024. Among them, WTI crude oil was deeply mired in the slump, setting the longest consecutive weekly decline of the year, with seven consecutive weeks of decline. Although there was a two-day technical rebound from March 9th to 10th, like a glimmer of hope in the dark, from the perspective of overall market sentiment and price-dominating factors, the market's concern about the global oversupply of crude oil still loomed like a thick haze, firmly covering and dominating the price trend.​

On the supply side, the latest data recently released by the US Energy Information Administration (EIA) was like a boulder thrown into a calm lake, causing huge waves. In the week ending March 6th, US crude oil inventories increased significantly by 4.2 million barrels, climbing to 485 million barrels. This has been the fifth consecutive week of growth, far exceeding the market's previous expectation of an increase of 1.5 million barrels. At the same time, the domestic crude oil production in the United States also remained at an astonishingly high historical level, steadily at 12.5 million barrels per day. In this price range, shale oil companies seemed to have been injected with a shot of stimulant, and their production enthusiasm was significantly enhanced, continuously pushing crude oil into the market, further exacerbating the oversupply situation. Looking at the global level, the implementation of production cuts by OPEC+ is also a cause for concern. Data shows that its production cut compliance rate has been below 60% for three consecutive months. For example, in February, the actual production cut was about 1.8 million barrels per day, while the agreement target was 3 million barrels per day. The huge gap has continuously accumulated the pressure of global oversupply of crude oil, like a mountain that is getting higher and higher, weighing down the market.​

Geopolitical factors have always played an extremely important role in the crude oil market, and this trading week is no exception. Although the situation in the Middle East has been continuously tense, and the frequency of attacks by the Houthi rebels in Yemen on merchant ships in the Red Sea has been increasing, casting a thick shadow over the regional situation. Logically speaking, this would trigger strong concerns in the market about the disruption of crude oil supply, thus pushing up oil prices. However, the International Energy Agency (IEA) pointed out that the current global spare capacity of crude oil is about 4.5 million barrels per day. This data indicates that the world has sufficient capacity to cope with the potential supply shocks caused by local conflicts. Moreover, the US Strategic Petroleum Reserve (SPR) has also been continuously released. The cumulative release in March alone reached 12 million barrels. These series of measures have further alleviated the market's original panic about short-term supply shortages, greatly reducing the driving effect of geopolitical factors on oil prices.​

At the market psychology level, investors' mindsets are constantly changing when facing the complex market environment. The US dollar index fell by 3.2% for the whole week, recording the largest single-week decline since January 2023. Theoretically, this should strongly support crude oil priced in US dollars. However, the actual market reaction was not so simple. On March 7th, Fed Chairman Jerome Powell hinted at a possible slowdown in the pace of interest rate hikes in his testimony before Congress. This news caused the US dollar index to decline rapidly. But surprisingly, the crude oil price only rebounded briefly and then returned to the downward trend. This phenomenon clearly shows that the market is more concerned about the suppression of the demand side of crude oil by the risk of economic recession at this time. Against the backdrop of oversupply, the uncertainty of demand has become the Sword of Damocles hanging over oil prices.​

In conclusion, during the trading week from March 3rd to March 10th, the international crude oil market showed a volatile and overall downward trend under the dual influence of the heavy pressure of oversupply and the complex geopolitical games. In the future, the trend of the crude oil market will still depend on the adjustment of the supply side, the evolution of geopolitical situations, and the pace of global economic recovery and other comprehensive factors.​