Crude Oil Rallies on Possible US-India Trade Deal and Unexpected Draw in EIA Inventories

Crude oil and gasoline prices surged to one-week highs, primarily driven by an unexpected decline in EIA crude and gasoline inventories, reports of a potential US-India trade deal that could reduce India's reliance on Russian crude, and plans to refill the Strategic Petroleum Reserve. This upward momentum occurred despite bearish signals, including the IEA's forecast of a substantial global oil surplus by 2026, easing Middle East tensions, and the anticipated resumption of Iraqi Kurdish oil exports, suggesting immediate supply-side factors and demand shifts are currently outweighing longer-term oversupply concerns.

Analysis

Crude oil and RBOB gasoline prices surged, reaching one-week highs, with WTI up +2.04% and RBOB up +1.99%. This immediate upward movement was primarily driven by an unexpected decline in weekly EIA crude inventories by -961,000 barrels, alongside a larger-than-expected draw in gasoline supplies and a -770,000 bbl drop in Cushing stockpiles. Further support came from reports of a potential US-India trade deal, which could shift Indian crude demand away from Russia towards alternative suppliers.

Additional bullish catalysts include the Trump administration's plan to refill the Strategic Petroleum Reserve by 1 million barrels and a -12% week-over-week reduction in crude oil held on stationary tankers. Geopolitical factors also played a role, with reduced Russian crude exports due to Ukrainian attacks on refineries and OPEC+'s smaller-than-expected production target increase of 137,000 bpd providing price support. US crude production also saw a slight weekly decline of -0.1%.

Despite these immediate gains, significant bearish pressures persist, including the IEA's forecast of a record global oil surplus of 4.0 million bpd by 2026. Easing Middle East tensions, marked by a ceasefire agreement, have reduced the geopolitical risk premium, while the anticipated resumption of Iraqi Kurdish oil exports could add 500,000 bpd to global supplies. The market exhibits a mixed sentiment, reflecting these conflicting short-term bullish drivers and longer-term oversupply concerns.

Key Decisions for Investors

• Monitor the progress of the US-India trade deal and its implications for global crude demand shifts, as well as the actual pace of SPR refills for sustained demand support.
• Evaluate short-term inventory data and geopolitical developments for tactical trading opportunities, while acknowledging the IEA's long-term oversupply forecast for strategic positioning.
• Consider hedging strategies or adjusting exposure given the conflicting short-term bullish catalysts and persistent long-term bearish outlook from increased global supply and reduced risk premium.