SunSirs: Supported by Geopolitical Risks and Changes in Supply and Demand, Crude Oil Prices Significantly Increased During the Spring Festival

During the Spring Festival, the international crude oil market experienced severe fluctuations, with prices rising overall and reaching a six-month high, mainly due to the dual effects of geopolitical tensions and fundamental changes. The upgrading of US Iran relations became the core driving factor, while the shift in global oil supply and demand patterns also added uncertainty to the market.

During the Spring Festival period (February 13-23), the price of WTI crude oil in the United States rose from $62.89 per barrel to $66.31 per barrel, an increase of 5.5%. Brent crude oil rose from $67.75 per barrel to $71.11 per barrel, an increase of 5.0%. Both US and Brent crude oil reached their highest levels in six months. The core driving factor for this increase comes from the geopolitical risk premium and the ongoing tension in the relationship between the United States and Iran. The military activities of the two countries in the oil producing regions of the Middle East have significantly increased, and the market is concerned that a breakdown in negotiations may lead to supply disruptions. The news that the US Department of Defense is preparing to deploy a second aircraft carrier strike group to the Middle East has further intensified market volatility. As an important global oil exporting country, Iran's production has remained above 3.3 million barrels per day for a long time, with exports exceeding 1.6 million barrels per day. Once a substantial conflict occurs, the safety of passage through the Strait of Hormuz will face severe challenges.

It is worth noting that the progress of the US Iran negotiations directly affects the trend of oil prices. If negotiations break through, oil prices may quickly recoup their previous geopolitical premium. The market generally believes that the tail risk of the Strait of Hormuz will continue to exist until a short-term framework is reached between the United States and Iran.

Besides geopolitical factors, fundamental changes in the crude oil market cannot be ignored. The latest data from the US Energy Information Administration (EIA) shows that as of the week ending February 13th, US crude oil inventories have significantly decreased by 9 million barrels to 419.8 million barrels, far exceeding market expectations. Gasoline and distillate inventories have also significantly decreased, reflecting a comprehensive increase in fuel demand from refineries to gas stations.

From a seasonal perspective, before and after the Spring Festival, it is a critical period for the cold wave in Europe and America, and heating demand is in a phase of switching between peak and off peak seasons. As the post holiday cold wave subsides, downstream refineries are gradually carrying out spring maintenance, and the trend of changes in US crude oil inventories is worth paying attention to. Historical data shows that the trend of the first trading day after the holiday is usually consistent with the performance of the external market, and the weekly trend often continues in the direction of the first day.

Macroeconomic factors affect demand expectations

At the macro level, the adjustment of US tariff policies has dragged down the oil market. The Trump administration announced an increase in import tariffs on global goods from 10% to 15%, while core inflation in the United States returned to 3% and GDP growth slowed down, all of which are unfavorable for expectations of crude oil demand.

On the OPEC side, the eight member countries will hold a meeting on March 1st and are currently inclined to resume production plans from April to cope with the peak demand for summer oil. However, the combined oil exports of Iran, Venezuela, and Russia have decreased by over 1 million barrels per day compared to the previous quarter, leading to the unfulfilled global inventory expectations for the first quarter and providing support for the oil price center.

Looking ahead to the post holiday market, crude oil analysts from SunSirs believe that there is still significant uncertainty in the trend of crude oil prices. The game between geopolitical risks and fundamental changes will continue to dominate the market direction. If the US Iran situation does not escalate into substantial supply disruptions, the current geopolitical premium may not be sustainable, and there is a risk of market backlash. Investors need to closely monitor the results of OPEC meetings, US inventory data, and the latest geopolitical developments to manage risks effectively.

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