Oil Rally Continues Amid Venezuelan Tariffs and Diplomatic Breakthroughs

Oil prices edged higher in early trading on Wednesday, continuing a multi-day rally as market participants weighed positive inventory data against ongoing geopolitical developments.

WTI crude is currently trading at $69.50 per barrel, while Brent crude hovers near $73.27 as of early morning trading in Asia. Oil benchmarks gained ground overnight following the American Petroleum Institute (API) report showing a substantial 4.6 million barrel decrease in U.S. crude inventories last week.

This significantly exceeded analyst expectations of a 1 million barrel draw. This marks the largest inventory reduction since November if confirmed by today’s official Energy Information Administration (EIA) data.

WTI crude climbed to a three-week high of $69.67 before encountering resistance, while Brent futures added 25 cents (0.3%) in early Asian trading. Both benchmarks have been forming higher lows and higher highs within an ascending price channel on hourly charts.

Key Market Drivers

Supply Concerns vs. Diplomatic Developments

The market is balancing two conflicting narratives. On one hand, supply-side concerns are mounting after President Trump’s executive order authorizing 25% tariffs on nations purchasing Venezuelan oil.

This move threatens to restrict Venezuela’s ability to export its primary commodity, with potential output reductions of approximately 200,000 barrels per day if Chevron‘s operational license is revoked after May 27.

Simultaneously, diplomatic developments are tempering price gains. The United States has brokered agreements with both Ukraine and Russia to pause maritime attacks and strikes on energy facilities.

Russian Foreign Minister Sergei Lavrov indicated Moscow’s openness to negotiating new shipping safety agreements in the Black Sea. “If there’s a ceasefire between Russia and Ukraine, it might open the door for the reduction of sanctions on Russian oil,” noted Phil Flynn, senior analyst with Price Futures Group.

Global Supply Outlook

OPEC+ countries are expected to proceed with planned production increases in May, following their strategy of gradually unwinding voluntary output cuts.

However, analysts anticipate the actual supply boost may be smaller than the nominal 138,000 bpd increase, as many members are currently overproducing relative to their targets.

Global oil supply rose by 240,000 bpd in February to 103.3 million bpd, led by OPEC+ producers, with Kazakhstan reaching record output levels as the Tengiz project expanded. Non-OPEC+ production is forecast to increase by 1.5 million bpd in 2025, with the United States, Canada, Brazil, and Guyana as major contributors.

Demand Considerations

Despite recent price strength, demand concerns linger. The IEA projects global oil demand growth will accelerate to just over 1 million bpd in 2025, up from 830,000 bpd in 2024, with Asian countries accounting for nearly 60% of gains.

However, recent delivery data has fallen below expectations, resulting in slightly lower growth estimates for Q4 2024 and Q1 2025. “The bullish bias is clear for now, but Trump‘s sweeping tariffs risk triggering a broader economic slowdown that could cap oil prices,” warned Priyanka Sachdeva, senior market analyst at Phillip Nova.

Technical Analysis

WTI crude is currently testing critical resistance at $69.67, a level reinforced by both a descending trendline and horizontal resistance. The Relative Strength Index (RSI) has retreated from overbought levels, suggesting cooling momentum.

Key technical levels to watch include:

• Immediate support: $68.40
• Secondary support: $67.94
• Key resistance: $69.63 and $70.09

The 100-day Simple Moving Average remains above the 200-day SMA, indicating that “the path of least resistance is to the upside or that the climb is more likely to gain traction than to reverse”.

Market Outlook

Oil market analysts from Panmure Liberum noted: “Oil prices strengthened in response to the latest tariff actions by the U.S., although the gains were limited by news of OPEC+’s plans to further increase output in May”.

The IEA’s latest assessment suggests global oil supply may exceed demand by approximately 600,000 bpd this year. This surplus could expand by another 400,000 bpd if OPEC+ continues unwinding output cuts beyond April without addressing overproduction by certain members.

Brent crude futures are expected to face resistance near $73.45, with a potential upside target of $75.25 if the bullish momentum continues. However, most analysts maintain a cautious outlook given the conflicting supply-demand signals and macroeconomic uncertainties.

As traders await today’s official EIA inventory data, the market remains sensitive to both geopolitical developments and broader economic indicators that could influence demand projections for the remainder of 2025.