Crude Edges Higher: Geopolitical Tensions Outweigh Supply Concerns in March Rally

The oil market continues its upward trajectory this morning, building on gains from the previous sessions as geopolitical tensions outweigh global supply concerns.

Current Prices and Overnight Movements

WTI crude is trading at $67.90 per barrel this morning, extending its 1.5% gain over the past two sessions. Brent crude futures increased by 10 cents (0.14%) to $71.30 per barrel in early trading. The spread between these two benchmarks remains relatively stable at around $3.40.

Overnight, Asian markets responded positively to recent Chinese economic data, providing support for crude prices despite broader economic concerns globally. Market activity in early European trading shows modest volume increases, particularly in Brent futures contracts.

Key Market Drivers

Geopolitical Tensions

Middle East instability continues to place a risk premium on crude prices. The US carried out extensive airstrikes against Houthi rebels in Yemen over the weekend, with at least 53 casualties reported. President Trump has committed to continuing military actions against the Houthis until they cease their attacks on vessels in the Red Sea.

The Russia-Ukraine conflict remains a significant factor, with Ukrainian drone strikes targeting Russian energy infrastructure in the Astrakhan region overnight. This follows last week’s attack on the Druzhba pipeline, which temporarily disrupted Russian oil supplies to Hungary.

Economic Indicators

Chinese economic data has provided a positive catalyst for oil prices. January-February retail sales rose 4% year-on-year, exceeding forecasts of 3.8%, while fixed investment and industrial output also outperformed expectations. Beijing has announced additional measures to boost consumption and stabilize stock and real estate markets.

In the US, retail sales data came in stronger than expected, although still showing a modest slowdown. However, as independent market analyst Tina Teng notes, “Fundamental economic uncertainties are overshadowing geopolitical issues”.

Supply and Demand Dynamics

The market continues to balance concerns about potential oversupply against geopolitical disruption risks. Venezuela’s state-owned PDVSA has outlined plans to continue oil production and exports from its joint venture with Chevron, even after the US company’s license expires next month.

Meanwhile, market positioning has become more bullish week-on-week but remains risk-off overall. Speculative players reduced their short positions in Brent by 17mb (-14%) in the week to March 11. CTA net positioning in Brent is becoming less bearish, moving from -44k lots on March 12 to -38.5k lots on March 17.

Technical Analysis

Brent crude continues to move within a correction pattern, forming a “Wedge” model according to technical analysts. Moving averages indicate a short-term bearish trend for oil, with prices testing the area between signal lines. Resistance is expected near $72.05 per barrel, with support at $68.05.

A breakout above $74.45 would indicate continued growth potential toward $81.65, while a fall below $68.05 could trigger a decline toward $65.05.

Broader Market Context

The OECD has raised concerns about the impact of Trump’s tariffs on global growth, noting they are likely to hinder economic expansion in the US, Canada, and Mexico, consequently affecting global energy demand.

Rennie, head of carbon trading at Westpac, maintains a bearish outlook: “Given the surge in global supply and the anticipated effects of tariffs and trade disputes on demand, we maintain our outlook that prices will decline, potentially settling in the mid $60s”.

Currency Effects

The weakening US dollar (down 0.03%, extending its monthly fall to over 3.6%) is providing some support for oil prices. The Indian Rupee opened nine paise stronger against the USD at ₹86.91, following five consecutive months of decline.

Outlook

Analysts anticipate that Brent crude may trade between $70 and $73 per barrel this week, supported by geopolitical risks and positive Chinese economic data. However, any unexpected announcement regarding US tariffs could quickly lead to a downward correction in prices.

The outcome of today’s Trump-Putin discussions regarding Ukraine could also significantly impact market sentiment, as any peace agreement might lead to the relaxation of sanctions on Russia and increased global supply.

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