Oil prices volatile as tariff concerns outweigh peace hopes

Oil prices plummeted in early trading on Thursday and WTI price dipped from $71.6 to $70.5 per barrel as geopolitical tensions eased. Oil prices rallied later, however, with WTI price rising to $71.8 per barrel, on tariff concerns. If oil prices retreat, they may encounter support near $70.5 per barrel, while resistance may be found near $74.1 per barrel.

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. US crude oil inventories released on Wednesday showed that US crude stockpiles exceeded expectations, putting pressure on oil prices. The US Energy Information Administration (EIA) reported a weekly crude stockpile build of 4.1M barrels for the week to February 7, exceeding expectations of 2.4M barrel growth and following a rise of 8.7M barrels the week before.

Reports that US President Donald Trump and Russian President Vladimir Putin agreed to initiate negotiations aimed at ending the war in Ukraine, eased geopolitical tensions on Thursday. Hopes that the crisis between Russia and Ukraine might finally end, eased oil supply concerns on Thursday, putting pressure on oil prices.

Trump has already issued a series of executive orders imposing tariffs on trading countries. US President Donald Trump has been using threats of imposing trade tariffs as a negotiation tool to further his agenda with other countries. On Monday, Trump announced a 25% tariff on steel and aluminum imports for all countries importing into the US, raising concerns over global trade wars. 

Trump has threatened that he will announce reciprocal tariffs on many countries, which would raise US import taxes to match those imposed by the country’s other trading partners. On Thursday, Trump signed an order to his staff to develop custom tariffs for each country, stating “Whatever they charge us, we will charge them”. If Trump goes through with these heavy tariffs, global inflation is likely to rise and the economic outlook will worsen, putting pressure on 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 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 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. 

US inflation data released on Wednesday were hotter than anticipated, indicating that inflationary pressures are on the rise and lowering Fed rate cut expectations. Headline inflation rose by 3.0% year-on-year in January after rising by 2.9% in December against expectations of a 2.9% print. Market odds of another rate cut dropped after the release of the US inflation report on Wednesday. Markets are pricing in only a single 25bps rate cut within the year as inflationary pressures remain high. Producer Price Index data on Thursday also showed an uptick in producer inflation in January.

Supply concerns are providing support for oil prices, however. US President Donald Trump has imposed new sanctions on Iranian oil exports. The Iranian government has urged OPEC members to take united action against the US sanctions, while the US President is pressuring Saudi Arabia to increase its oil output to make up for the deficit that will be created by the sanctions. 

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.

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Written by:
Myrsini Giannouli

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