Oil prices drop on geopolitical development

Oil prices dipped on Thursday and WTI price dropped from $67.7 to $66.6 per barrel. If oil prices retreat, they may encounter support near $65.2 per barrel, while resistance may be found near $68.5 per barrel.

Reports of ceasefire talks between Russia and Ukraine put pressure on oil prices on Thursday. A US delegation has been sent to Moscow to discuss the terms of a ceasefire treaty between Russia and Ukraine. Ukraine’s President Volodymyr Zelenskyy, however, warned on Thursday that Russia is likely to reject the treaty and continue the war.

US crude oil inventories released on Wednesday missed expectations, boosting oil prices. The US Energy Information Administration reported a weekly crude stockpile build of 1.4M barrels for the week to March 7, against expectations of a bigger build by 2.1M barrels and following a rise by 3.6M barrels the week before.

On Tuesday, the White House announced a global 25% tariff on global steel and aluminum imports to the US that would take effect on Wednesday. Moreover, US President Donald Trump announced on his social media that he would impose a double tariff of 50% on aluminum and steel products from Canada. Trump backpedaled on his threats to impose double tariffs on Canada, however, just a few hours later.

Trump has been using threats of imposing trade tariffs as a negotiation tool to further his agenda with other countries. Trump has threatened to impose reciprocal tariffs on many countries, which would raise US import taxes to match those imposed by the country’s other trading partners.

Trump’s tariffs may spark global trade wars and are causing turmoil in markets. Trump has threatened to impose heavy tariffs on Canadian products, including energy products. The threat of tariffs on Canadian energy products, which are Canada’s main export to the US, is boosting oil prices.  

US import taxes will raise the price of many products, fueling inflationary pressures. Other nations are likely to reciprocate with tariffs of their own, starting global trade wars, which may lead to economic deterioration and rising inflation in many countries. 

Trump’s economic policies are raising concerns that the US economic growth will slow down. Many analysts are already expressing concerns that the US will enter recession. Trump tried to downplay recession risks in an interview with Fox News over the weekend. Trump carefully avoided the word recession, stating instead that the US economy is in a period of transition.

Oil prices are kept in check by high central banks’ interest rates. The US Federal Reserve held interest rates steady at its January meeting after delivering three consecutive rate cuts in 2024. FOMC policymakers voted unanimously to maintain the federal funds range to a target range of 4.25% to 4.50%. 

Fed rate cut expectations rose after the release of the US inflation report on Wednesday. Markets are currently pricing in three rate cuts in 2025, with the first rate cut in June, compared to just two rate cuts the week before.

Oil prices dipped last week after the Organization of the Petroleum Exporting Countries (OPEC) announced plans to raise oil output starting in April. The organization has been using voluntary oil production cuts among its members to limit oil production and keep oil prices high. Last week, however, the cartel announced that they would raise oil output by 2.2 million barrels a day starting from April, driving oil prices down.

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Written by:
Myrsini Giannouli

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