Crude Oil Prices Tumble Amid Trade Concerns and Tariff Changes
March WTI crude oil (CLH25) closed down -0.46 (-0.63%) on Tuesday, while March RBOB gasoline (RBH25) dropped -0.0187 (-0.88%).
Pressure from Trade Agreements
On Tuesday, crude oil and gasoline prices fell moderately, with crude reaching a 5-week low. Ongoing tariff concerns eased when the US announced a one-month delay on 25% tariffs for Canada and Mexico, the top suppliers of crude to the US. Tensions heightened after the US imposed 10% tariffs on China, prompting retaliatory measures from China on certain US goods. This situation raises fears of a larger trade war that could negatively impact global economic growth and energy demand. Fortunately for crude prices, a weaker dollar helped them recover slightly from their lowest levels.
Market Reactions to Political Developments
Short-covering was noted on Tuesday following a Reuters report that President Trump would escalate economic pressure on Iran, potentially leading to a decrease in Iranian crude exports and tightening the global oil supply.
Weaker Economic Indicators
Tuesday’s US economic data painted a gloomy picture, negatively affecting energy demand and crude prices. December’s JOLTS job openings fell by -556,000 to 7.6 million, missing expectations of 8.0 million. Additionally, factory orders dropped -0.9% month-over-month, with this being the steepest decline seen in six months, while the predicted decrease was merely -0.8%.
Global Supply Trends
A significant drop in crude oil stored on tankers worldwide suggests potential support for oil prices. Vortexa reported on Monday that crude oil stored on idle tankers decreased by -6.9% week-over-week, totaling 67.30 million barrels as of January 31.
OPEC+ Decisions Impact Prices
During their monthly meeting, OPEC+ declared that it would maintain its oil production plans for the first quarter before gradually restoring production in stages, starting in April. New sanctions imposed by the US on Russia’s oil industry on January 10 are expected to further restrict global supplies. These measures target companies like Gazprom Neft and Surgutneftgas, which contributed about 970,000 barrels per day to Russia’s export total in the first 10 months of 2024, as reported by Bloomberg.
Insights on Russian Exports
The decline in Russian crude oil exports also supports pricing. Weekly data from Bloomberg revealed that Russian exports dipped by -130,000 barrels per day to 3.09 million barrels per day for the week ending February 2.
Future Sanctions Could Affect Markets
The prospect of new sanctions against Iranian and Russian oil exports raises the possibility of limited global supplies, which bodes well for crude prices. Trump’s national security adviser, Mike Walz, announced a return to “maximum pressure” on Iran while US Treasury Secretary Bessent expressed readiness to increase sanctions on Russian oil companies to push Russia to end its conflict in Ukraine.
OPEC+ Adjustments Continue
Last month, OPEC+ decided to delay a planned hike in crude production by +180,000 barrels per day from January to April and committed to unwinding cuts at a slower pace than originally scheduled. The UAE also postponed its target increase of 300,000 barrels per day from January to April. Although OPEC+ had aimed to restore 2.2 million barrels per day in monthly increments through late 2025, this has now been extended to September 2026. OPEC’s January production dropped by -700,000 barrels per day to 27.03 million barrels per day.
China’s Impact on Demand
Weakening demand for crude in China serves as a bearish factor for prices. Data from Chinese customs indicates that crude imports in 2024 dropped by -1.9% year-over-year to 553 million metric tons, with China remaining the world’s largest crude importer.
Anticipated Inventory Changes
Market consensus suggests that Wednesday’s weekly EIA report will reveal an increase of +2.0 million barrels in crude inventories, while gasoline supplies are expected to decline by -880,000 barrels.
Recent EIA Findings
The EIA’s last report indicated that as of January 24, US crude oil inventories were -5.6% below the seasonal 5-year average, gasoline inventories were -0.3% lower, and distillate inventories stood -8.7% below the average. US crude oil production dipped -1.8% week-over-week to 13.24 million barrels per day, slightly below the record high of 13.631 million barrels per day recorded in early December.
Baker Hughes reported an uptick in active US oil rigs for the week ending January 31, increasing by +7 to 479 rigs. This comes after a slump to a 3-year low of 472 rigs the previous week. Over the past two years, the number of oil rigs has dropped significantly from the 4-1/2 year high of 627 rigs noted in December 2022.
On the date of publication,
Rich Asplund
did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy
here.
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