Oil prices rise on renewed tariff threats

Oil prices gained strength on Thursday and WTI price rose from $74.0 to 74.3 per barrel. If oil prices retreat, they may encounter support near $73.0 per barrel, while resistance may be found near $78.0 per barrel.

Oil prices dipped on Wednesday after the release of better-than-expected US crude oil stockpiles. US crude oil inventories released on Wednesday showed that US crude stockpiles exceeded expectations, putting a lid on oil prices. The US Energy Information Administration reported a weekly crude stockpile build of 3.5M barrels for the week to January 24, exceeding expectations of 2.2M growth and following a drop by 1.0M barrels the week before.

Oil prices are under pressure by concerns over US President Donald Trump’s energy agenda. Trump has vowed to declare a national energy emergency and start drilling for oil immediately to build up US strategic reserves. 

Speaking at the World Economic Forum in Davos, last week, Trump urged OPEC members to lower oil prices. Trump said that he would ask Saudi Arabia and other OPEC countries to bring down the cost of oil. 

Trump has already issued a series of executive orders imposing tariffs on trading countries. Those tariffs have the potential to affect oil supply in the US, causing volatility in oil prices. Trump imposed a 25% tariff on imports from Canada starting February 1. Canada’s primary export is crude oil, which is chiefly bought by the US. Over the weekend, Trump threatened Colombia with 50% tariffs on their imports after the country refused to take in deported immigrants from the US. On Monday, however, the Colombian government backed down on accepting deportees from the US, and trade tariffs against the country have been put on hold. Oil prices dipped on Monday as concerns over disruptions in the oil supply chain eased after potential sanctions on Colombia were put on hold. 

Trump posted tariff threats on his social media on Thursday, causing market turmoil. Trump reiterated threats to impose a 25% import tax on all goods crossing the border into the US from Canada and Mexico over the weekend, boosting oil prices.

Increasing Western sanctions against Russia and Iran have been paying off, limiting the oil output of these countries. Former US President Joe Biden has imposed strict sanctions on Russian oil exports. Incoming US President Donald Trump, however, may ease restrictions on Russia’s oil exports in exchange for an agreement to end the war in Ukraine. Trump, on the other hand, is also expected to reinforce restrictions on Iran's oil exports. 

OPEC+ has announced that it will extend its voluntary production cuts until the end of the first quarter of 2025, however. Oil prices have been under pressure and the cartel is limiting production in an attempt to raise oil prices. 

Oil prices are kept in check by high central banks’ interest rates. The US Federal Reserve held interest rates steady at its January meeting, which was concluded on Wednesday, 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%, which was in line with expectations. 

The Fed’s latest monetary policy statement did not include an earlier mention that US inflation is moving towards the central bank’s 2% target. Instead, the report stated that price pressures remain elevated, leading to a prolonged pause in rate cuts. The Fed’s statement highlighted that the US labor market remains robust and that the economy is expanding satisfactorily. 

Fed Chair Jerome Powell delivered a mildly hawkish message after the policy meeting, putting pressure on oil prices. Powell stated that the Fed’s approach will remain data-driven and stressed that the central bank needs to consider potential policy changes under Trump’s administration. Market odds of another rate cut before summer dropped after Powell’s speech, with markets pricing in a rate cut in June at the earliest.

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Written by:
Myrsini Giannouli

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