Oil prices surge to seven-week high: U.S. inventories unexpectedly fall on geopolitical supply concerns
2025-09-25 02:17:11
Oil prices surged about 2% on Wednesday, hitting a seven-week high. The rally was driven by an unexpected drop in U.S. crude inventories, which heightened expectations of tight supply due to export disruptions in Iraq, Venezuela, and Russia.
Data from the U.S. Energy Information Administration (EIA) showed that U.S. crude oil inventories fell by 607,000 barrels last week, well below the 235,000-barrel increase expected by analysts in a Reuters poll, but milder than the 3.8 million-barrel drop reported by the American Petroleum Institute (API) on Tuesday.
In the futures market, Brent crude oil futures (LCOc1) rose $1.64, or 2.4%, to $69.27 per barrel at 1:23 PM ET (01:23 GMT), while West Texas Intermediate (WTI) futures (CLc1) rose $1.59, or 2.5%, to $65.00 per barrel. This is expected to bring Brent's closing price to its highest since August 1, while WTI will hit its high since September 2.
Despite overall loose global supply expectations, short-term geopolitical risks have become the "black swan" factor that dominates oil prices, pushing market sentiment towards a bullish trend.
EIA inventory data showed a broad decline, boosting market confidence
The EIA report not only showed an unexpected drawdown in crude oil inventories, but also revealed simultaneous declines in distillate and gasoline inventories, creating a "triple kill" in inventory. John Kilduff, partner at Again Capital, commented: "Given the across-the-board decline in inventories, this report is somewhat supportive."
Such data reinforced market optimism about a demand recovery, particularly with signs of a pickup in refinery utilization rates following the end of the US summer driving season. A Reuters poll showed that while analysts had expected a small inventory build, the actual decline exceeded expectations, highlighting the immediate impact of inventory developments in the United States, the world's largest oil consumer, on prices. The International Energy Agency (IEA) noted in its September monthly report that while global inventories are expected to accumulate at a rate of 2.5 million barrels per day in the second half of 2025, short-term fluctuations could amplify signals of tight supply.
This inventory surprise may mark the market's transition from a summer downturn to autumn uncertainty, and investors need to be wary of potential feedback from subsequent data on OPEC+ production.
Geopolitical Catalyst: Escalating Conflict Between Russia and Ukraine
Geopolitical risks have once again become a catalyst for oil prices. News of a nighttime Ukrainian military attack on two oil pumping stations in Russia's Volgograd region further fueled market panic. The city of Novorossiysk, a major Black Sea oil and grain export port, declared a state of emergency, highlighting the vulnerability of its infrastructure. Tamas Varga, an analyst at the PVM Oil Institute, said: "The focus has recently shifted back to Eastern Europe and the possibility of new sanctions against Russia."
Traders report that Ukrainian drone attacks have led to a drop in Russian refinery operating rates, triggering shortages of some fuel grades. This follows Kyiv's intensified crackdown on energy infrastructure, aimed at undermining Moscow's export revenues. Russia's Ministry of Finance has proposed raising the value-added tax (VAT) from 20% to 22% in 2026 to fund military spending and curb the budget deficit. This would mark the fifth year of the Russo-Ukrainian war. As the world's second-largest crude oil producer (after the United States) and a member of OPEC+ in 2024, Russia's supply stability is under scrutiny. CNBC analysts note that new sanctions could further squeeze Russian exports, similar to the crackdown on Iran's "shadow fleet" earlier this year, complicating global trade logistics.
The European Union plans to lower the price cap on Russian oil from September 3 as part of the 18th round of sanctions, further exacerbating supply uncertainty.
US policy shift: Trump's remarks spark supply concerns
Political developments in the United States are also injecting uncertainty. US President Trump expressed confidence that Ukraine could reclaim all territory seized by Russia, marking a sharp shift in Washington's stance toward Kyiv. Earlier this month, the Trump administration urged the European Union to accelerate its phase-out of Russian oil and gas imports. A Dallas Federal Reserve report indicates that oil and gas production and activity in major US oil-producing states (Texas, Louisiana, and New Mexico) are projected to decline slightly in the third quarter of 2025, partly due to investment caution stemming from geopolitical risks.
Chevron's move to restrict Venezuelan oil exports due to US licensing issues further amplified short-term bullish sentiment. A World Bank blog analysis noted that geopolitical tensions often amplify oil price fluctuations through the "risk premium" channel, similar to the 4% surge in Brent prices in the early stages of the Middle East conflict.
However, ECB research emphasizes that this shock is mostly a negative demand effect, and if it involves key oil-producing countries, it may turn into supply disruptions and push prices up.
The dual pressures of Iran and Iraq: the game between sanctions and export agreements
The outlook for Iranian supply is equally bleak. Iranian Oil Minister Mohsen Paknejad stated that there would be no "new onerous restrictions" on oil sales and that exports to China would continue, but UN sanctions on Iran's uranium enrichment activities may be reinstated this week. President Pezeshkian reiterated at the UN General Assembly that Iran has no intention of developing nuclear weapons. As OPEC's third-largest crude oil producer (after Saudi Arabia and Iraq), Iran's export stability is crucial in 2024. The IEA warned that new sanctions are likely to have only a modest impact on supply flows, as exports are already on a downward trend.
In Iraq, despite eight international oil companies reaching an agreement in principle with the federal and regional governments in Kurdistan to resume exports, crude oil prices continued to rise. Iraq was OPEC's second-largest producer in 2024, and a Kurdish pipeline disruption threatened 230,000 barrels per day (bpd) of supply. AInvest analysis indicates that geopolitical tensions, such as an Israeli strike against Iran in 2025, could trigger a 7-11% price spike in Burundi, highlighting the "butterfly effect" in the Middle East.
The industry umbrella organization stressed that although the agreement eased short-term panic, debt guarantee issues still pose hidden dangers.
Price Outlook: Bullish in the short term, under pressure in the medium term
Several institutions are cautiously optimistic about the current upward trend. The EIA's Short-Term Energy Outlook predicts that Brent prices will fall to $59 per barrel in the fourth quarter of 2025, dragged down by OPEC+ production increases and inventory accumulation, but acknowledges that geopolitical risks could push up short-term premiums. The IEA's monthly report adds that global supply is expected to grow by 2.7 million barrels per day in 2025, with non-OPEC+ contributing 14,000 barrels per day, but sanctions on Russia and Iran could reverse the balance.
CNBC commented that the inventory draw and tensions in the Middle East are a "double sword" combination, similar to the situation in March when oil prices rose by more than $1 after the sanctions on Iran.
Neuberger Berman's investment view is that the geopolitical risk premium has reached $10-12 per barrel, but the conflict escalation/de-escalation cycle will remain volatile.
AInvest strategists recommend that investors hedge volatility through options while keeping an eye on the cushion provided by OPEC+'s October production increase of 137,000 barrels per day.
Overall, the media consensus is that short-term supply concerns dominate, but the risk of a glut in 2026 (1.6 million barrels per day inventory growth) will push prices down to $51/barrel.
Market resilience will be tested
While this rebound in oil prices has been strong, it is embedded in broader uncertainties. The IEA emphasized that the surge in electric vehicle sales (expected to exceed 20 million in 2025) will curb peak demand, rather than providing a buffer from OPEC+ supply expansion.
A Dallas Fed simulation shows that even if the Strait of Hormuz is temporarily closed, the inflation impact would be only 1.3 percentage points in the short term.
For traders, Bookmap analysis recommends using geopolitical news to capture futures volatility opportunities while diversifying into emerging markets to hedge risks.
Under the geopolitical "new normal" in 2025, the resilience of the oil market will be tested, but the shadow of oversupply is quietly approaching.
Data from the U.S. Energy Information Administration (EIA) showed that U.S. crude oil inventories fell by 607,000 barrels last week, well below the 235,000-barrel increase expected by analysts in a Reuters poll, but milder than the 3.8 million-barrel drop reported by the American Petroleum Institute (API) on Tuesday.
In the futures market, Brent crude oil futures (LCOc1) rose $1.64, or 2.4%, to $69.27 per barrel at 1:23 PM ET (01:23 GMT), while West Texas Intermediate (WTI) futures (CLc1) rose $1.59, or 2.5%, to $65.00 per barrel. This is expected to bring Brent's closing price to its highest since August 1, while WTI will hit its high since September 2.
Despite overall loose global supply expectations, short-term geopolitical risks have become the "black swan" factor that dominates oil prices, pushing market sentiment towards a bullish trend.
EIA inventory data showed a broad decline, boosting market confidence
The EIA report not only showed an unexpected drawdown in crude oil inventories, but also revealed simultaneous declines in distillate and gasoline inventories, creating a "triple kill" in inventory. John Kilduff, partner at Again Capital, commented: "Given the across-the-board decline in inventories, this report is somewhat supportive."
Such data reinforced market optimism about a demand recovery, particularly with signs of a pickup in refinery utilization rates following the end of the US summer driving season. A Reuters poll showed that while analysts had expected a small inventory build, the actual decline exceeded expectations, highlighting the immediate impact of inventory developments in the United States, the world's largest oil consumer, on prices. The International Energy Agency (IEA) noted in its September monthly report that while global inventories are expected to accumulate at a rate of 2.5 million barrels per day in the second half of 2025, short-term fluctuations could amplify signals of tight supply.
This inventory surprise may mark the market's transition from a summer downturn to autumn uncertainty, and investors need to be wary of potential feedback from subsequent data on OPEC+ production.
Geopolitical Catalyst: Escalating Conflict Between Russia and Ukraine
Geopolitical risks have once again become a catalyst for oil prices. News of a nighttime Ukrainian military attack on two oil pumping stations in Russia's Volgograd region further fueled market panic. The city of Novorossiysk, a major Black Sea oil and grain export port, declared a state of emergency, highlighting the vulnerability of its infrastructure. Tamas Varga, an analyst at the PVM Oil Institute, said: "The focus has recently shifted back to Eastern Europe and the possibility of new sanctions against Russia."
Traders report that Ukrainian drone attacks have led to a drop in Russian refinery operating rates, triggering shortages of some fuel grades. This follows Kyiv's intensified crackdown on energy infrastructure, aimed at undermining Moscow's export revenues. Russia's Ministry of Finance has proposed raising the value-added tax (VAT) from 20% to 22% in 2026 to fund military spending and curb the budget deficit. This would mark the fifth year of the Russo-Ukrainian war. As the world's second-largest crude oil producer (after the United States) and a member of OPEC+ in 2024, Russia's supply stability is under scrutiny. CNBC analysts note that new sanctions could further squeeze Russian exports, similar to the crackdown on Iran's "shadow fleet" earlier this year, complicating global trade logistics.
The European Union plans to lower the price cap on Russian oil from September 3 as part of the 18th round of sanctions, further exacerbating supply uncertainty.
US policy shift: Trump's remarks spark supply concerns
Political developments in the United States are also injecting uncertainty. US President Trump expressed confidence that Ukraine could reclaim all territory seized by Russia, marking a sharp shift in Washington's stance toward Kyiv. Earlier this month, the Trump administration urged the European Union to accelerate its phase-out of Russian oil and gas imports. A Dallas Federal Reserve report indicates that oil and gas production and activity in major US oil-producing states (Texas, Louisiana, and New Mexico) are projected to decline slightly in the third quarter of 2025, partly due to investment caution stemming from geopolitical risks.
Chevron's move to restrict Venezuelan oil exports due to US licensing issues further amplified short-term bullish sentiment. A World Bank blog analysis noted that geopolitical tensions often amplify oil price fluctuations through the "risk premium" channel, similar to the 4% surge in Brent prices in the early stages of the Middle East conflict.
However, ECB research emphasizes that this shock is mostly a negative demand effect, and if it involves key oil-producing countries, it may turn into supply disruptions and push prices up.
The dual pressures of Iran and Iraq: the game between sanctions and export agreements
The outlook for Iranian supply is equally bleak. Iranian Oil Minister Mohsen Paknejad stated that there would be no "new onerous restrictions" on oil sales and that exports to China would continue, but UN sanctions on Iran's uranium enrichment activities may be reinstated this week. President Pezeshkian reiterated at the UN General Assembly that Iran has no intention of developing nuclear weapons. As OPEC's third-largest crude oil producer (after Saudi Arabia and Iraq), Iran's export stability is crucial in 2024. The IEA warned that new sanctions are likely to have only a modest impact on supply flows, as exports are already on a downward trend.
In Iraq, despite eight international oil companies reaching an agreement in principle with the federal and regional governments in Kurdistan to resume exports, crude oil prices continued to rise. Iraq was OPEC's second-largest producer in 2024, and a Kurdish pipeline disruption threatened 230,000 barrels per day (bpd) of supply. AInvest analysis indicates that geopolitical tensions, such as an Israeli strike against Iran in 2025, could trigger a 7-11% price spike in Burundi, highlighting the "butterfly effect" in the Middle East.
The industry umbrella organization stressed that although the agreement eased short-term panic, debt guarantee issues still pose hidden dangers.
Price Outlook: Bullish in the short term, under pressure in the medium term
Several institutions are cautiously optimistic about the current upward trend. The EIA's Short-Term Energy Outlook predicts that Brent prices will fall to $59 per barrel in the fourth quarter of 2025, dragged down by OPEC+ production increases and inventory accumulation, but acknowledges that geopolitical risks could push up short-term premiums. The IEA's monthly report adds that global supply is expected to grow by 2.7 million barrels per day in 2025, with non-OPEC+ contributing 14,000 barrels per day, but sanctions on Russia and Iran could reverse the balance.
CNBC commented that the inventory draw and tensions in the Middle East are a "double sword" combination, similar to the situation in March when oil prices rose by more than $1 after the sanctions on Iran.
Neuberger Berman's investment view is that the geopolitical risk premium has reached $10-12 per barrel, but the conflict escalation/de-escalation cycle will remain volatile.
AInvest strategists recommend that investors hedge volatility through options while keeping an eye on the cushion provided by OPEC+'s October production increase of 137,000 barrels per day.
Overall, the media consensus is that short-term supply concerns dominate, but the risk of a glut in 2026 (1.6 million barrels per day inventory growth) will push prices down to $51/barrel.
Market resilience will be tested
While this rebound in oil prices has been strong, it is embedded in broader uncertainties. The IEA emphasized that the surge in electric vehicle sales (expected to exceed 20 million in 2025) will curb peak demand, rather than providing a buffer from OPEC+ supply expansion.
A Dallas Fed simulation shows that even if the Strait of Hormuz is temporarily closed, the inflation impact would be only 1.3 percentage points in the short term.
For traders, Bookmap analysis recommends using geopolitical news to capture futures volatility opportunities while diversifying into emerging markets to hedge risks.
Under the geopolitical "new normal" in 2025, the resilience of the oil market will be tested, but the shadow of oversupply is quietly approaching.
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