Oil prices sensitive to Trump’s tariff threats

Oil prices remained bearish on Monday and WTI price dropped from $75.8 to $73.7 per barrel. If oil prices retreat, they may encounter support near $73.0 per barrel, while resistance may be found near $81.0 per barrel.

Donald Trump’s Presidential inauguration at the US capitol attracted market attention on Monday. Trump was sworn in as the 47th president of the United States. Oil prices are under pressure by concerns over 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. 

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 cut interest rates by 25 basis points at its latest meeting to a target range of 4.25% to 4.50%.  Markets this week will focus on the Fed’s rate decision on the 29th. The central bank is widely expected to keep interest steady this week and market odds of a rate cut are practically nil. Odds of another rate cut before summer are low and traders will focus on the Fed’s forward guidance to predict the timeline for future rate cuts.

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Written by:
Myrsini Giannouli

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