How to trade crude oil? Mohammed Imran of Mirae Asset Sharekhan decodes

Sanctions fear turns crude oil into buy

The oil fundamentals have swiftly moved into bullish zone amid fear of sanction on Iran and Venezuela getting stricter from the Whitehouse, Crude oil and gasoline prices on Monday settled moderately higher, with crude posting a 3-week high as President Trump announced a 25 per cent secondary tariff on countries that purchase oil or gas from Venezuela, effective April 2. WTI has recovered 5 per cent in two weeks from lows of $66.03 made on March 10 to settle at three weeks of $69 on Monday.

US tightening sanctions

Oil prices are driven higher amid the US is trying maximum pressure to curb Iran’s oil exports towards zero, sanctions could potentially wipe out 1.5 million barrels per day (mbpd) of Iran’s exports, although Iran still managed to export around 1.7-1.8 mbpd of oil in February. US President Trump recently sent a letter to Iran's Supreme Leader Ali Khamenei that said Iran has a two-month deadline to reach a new nuclear deal.  

 

 

Prices further got support from sanctions on Venezuela as the US has threatened to impose 25 per cent tariffs effective from April-2, on countries that purchase Oil and/or Gas from Venezuela. Venezuela produced about 875,000 barrels a day in 2024, according to Opec data, or about 0.9 per cent of total global oil production in 2024, majorly exporting to the US, China Cube and India to name a few.  

 

Last week, the US Treasury department sanctioned a China-based oil refinery and 19 entities and vessels tied to shipping Iranian crude oil. The US is putting maximum pressure to dent Iran’s oil revenue towards zero, however Iran has roughly able to export approx. 1.7-1.8 mbpd in February. 

Opec+ restoration rationale

On March 3, Opec+ decided to go ahead with their planned production restoration of 2.2 mbpd of production in phase manner until September 2026, starting with restoration of 1,38,000 barrels per day. If Opec+ fulfils its plan to boost supply every month, the cartel would add more than 2 million barrels a day, enough to meet all the incremental demand expected both in 2025 and next year, meanwhile non-Opec producers are expected to add around 1.5 mbpd during this phase, which could switch market balance into glut. 

 

Opec+ is already flexing its production as the cartel increased its production for a second straight month in February, to 34.13 mbpd in February, or about 2,43,000 barrels per day above January production. Eighteen of the 22 Opec+ members are participating in oil production cuts. These countries overshot their combined limit by 4,55,000 barrels per day. Kazakhstan becomes the new offender to have accounted for 43 per cent of total overproduction as it produced 3,30,000 barrels per day over its quota limit to reach output of 1.75 mbpd in February, although it has committed to compensate for overproduction but historically the cartel members have often failed to meet their commitment. We expect the market to see a surplus of 0.7 mbpd by the end of 2025.

Opec+ news compensatory cuts

Opec+ recently announced updated compensatory production plans on March 20, 2025, addressing overproduction by seven member nations that exceeded their agreed output quotas since January 2024. These countries—Russia, Iraq, Kazakhstan, Saudi Arabia, the United Arab Emirates, Kuwait, and Oman—are part of the "Group of Eight" that have been implementing voluntary cuts. 

 

The new plans aim to offset a cumulative overproduction of approximately 4.203 million barrels from January 2024 to February 2025, translating to an average monthly overproduction of about 300,000 barrels per day. Under the revised schedule, these nations will collectively reduce output by an average of 2,63,000 barrels per day over a 15-month period, from April 2025 to June 2026. Monthly compensation cuts will range between 1,89,000 and 4,35,000 barrels per day, depending on the extent of each country’s overproduction and market conditions.

Macro-economic data

Global economic news was mixed for crude prices. On the positive side, the Eurozone manufacturing activities have shown significant improvement in March, but US factory activities have contracted, while China's economy looks promising as Beijing is focussed on driving growth through domestic consumption supported by accommodative monetary policy stance. 

 

Meanwhile, advanced Q1 gross domestic product (GDP) could surprise the markets on the downside and inflation is expected to remain sticky due to tariff impacts, which could see a drop in US oil demand negatively.

Outlook

Crude oil futures remain in a bullish backwardation structure, with shorter-term contracts at a higher price than longer-dated ones, a sign of healthy supply and demand balances as we enter the peak global demand season from April to August, which could see prices making some recovery. 

 

However, the trade war remains the biggest hurdle in sustainable price recovery. In the short term, we expect WTI to bounce towards $72-$74. While we expect prices to fall back under $65 by the end of Q4 2025 subject to no further changes from Opec+.  (This article is by Mohammed Imran – research snalyst, Mirae Asset Sharekhan. Views expressed are his own.)