Oil prices dip on surprise U.S. inventory build and geopolitical jitters
By Axel Miller | 22 May 2025
Oil prices continued their downward drift on Thursday, marking a third consecutive session of losses. The slide came after a surprising uptick in U.S. crude and fuel inventories, raising fresh concerns about demand in the world’s largest oil-consuming economy. Meanwhile, investors are closely monitoring renewed nuclear talks between the U.S. and Iran—an issue with potential to reshape the global energy landscape.
By early Asian trading hours, Brent crude futures slipped 16 cents to $64.75 a barrel, while U.S. West Texas Intermediate (WTI) was down 10 cents at $61.47. Both contracts had fallen earlier following weekly data from the U.S. Energy Information Administration (EIA) showing a 1.3 million barrel rise in crude inventories. Analysts had widely expected a drawdown of similar magnitude, making the build all the more surprising.
Behind the inventory surge were higher crude imports—hitting a six-week high—and weakening domestic demand for gasoline and distillates. The data suggests a soft patch for U.S. fuel consumption, adding a bearish undertone to oil markets already navigating geopolitical uncertainty.
Geopolitical tensions add to oil market volatility
While rising inventories are pressuring prices, analysts suggest the effect may be short-lived. “The unexpected stock builds are definitely a headwind, especially for WTI,” said Emril Jamil of LSEG Oil Research. “But they may also trigger more U.S. exports to Europe and Asia, which could ease the supply glut at home.”
Some market participants are betting on a rebound as the U.S. approaches the Memorial Day weekend, which traditionally kicks off the busy summer driving season. This seasonal demand surge could help draw down stocks and stabilize prices.
Still, traders are grappling with broader uncertainties. Oil prices briefly rose earlier in the week on reports that Israel might be preparing a strike on Iranian nuclear sites—a move that could disrupt supply from OPEC’s third-largest producer. That spike quickly reversed after news emerged of a planned fifth round of U.S.-Iran nuclear talks in Rome, dampening fears of imminent conflict.
Investors remain wary of overcommitting, caught between competing narratives: one of diplomatic engagement, the other of military escalation.
Adding to the mix, Ukraine has announced plans to push the EU for tougher sanctions on Russia, including the seizure of assets and penalties for buyers of Russian crude. If enacted, such measures could further strain global supply chains and shift trade flows in unpredictable ways.
Summary:
Oil prices are under pressure from an unexpected build in U.S. inventories, signaling weaker domestic demand. While upcoming seasonal trends may offer support, geopolitical uncertainty—ranging from U.S.-Iran nuclear talks to potential sanctions on Russia—continues to cloud the market outlook. Businesses with exposure to oil prices should brace for continued volatility and closely monitor both economic data and diplomatic developments.
FAQs: Oil Market Volatility and Inventory Builds
1. Why did U.S. crude inventories rise unexpectedly?
The U.S. Energy Information Administration (EIA) reported a 1.3 million barrel increase in crude inventories for the week ending May 16. The surprise build was driven by a spike in crude imports, which reached a six-week high, and a decline in domestic demand for gasoline and distillates.
2. How do rising inventories affect oil prices?
Higher inventories typically signal weaker demand or oversupply, both of which can put downward pressure on prices. This is especially true in the case of WTI (West Texas Intermediate), which reflects domestic U.S. supply-demand dynamics.
3. What impact could Iran-U.S. nuclear talks have on oil markets?
If nuclear talks lead to a revived deal and sanctions on Iran are eased, Iranian oil could return to the global market. As Iran is a major OPEC producer, this could significantly increase supply, further weighing on prices. However, diplomatic breakdowns or military escalation would have the opposite effect, potentially driving prices up due to supply risks.
4. What is the significance of Memorial Day weekend for oil demand?
Memorial Day marks the unofficial start of the summer driving season in the U.S., historically one of the busiest travel periods. It typically leads to a seasonal spike in gasoline consumption, which can draw down inventories and support prices.
5. How could EU sanctions on Russian oil affect global supply?
New sanctions or enforcement measures by the European Union could reduce the availability of Russian crude, particularly to European buyers. This may redirect trade flows, tighten global supply, and create price volatility—especially for regions heavily dependent on Russian energy.
6. What should businesses and investors watch for next?
Key indicators to monitor include weekly EIA inventory reports, updates on Iran-U.S. negotiations, geopolitical developments involving Israel and Iran, and any EU decisions regarding further sanctions on Russia. Businesses exposed to oil prices should also keep an eye on shipping patterns and refinery utilization rates.
