Oil Prices Approach Third Weekly Decline Amid Trade Tensions
Oil prices are on track for a third consecutive weekly decline, fueled by concerns surrounding the tariffs imposed by former President Donald Trump on China. These tariffs are expected to hamper demand for crude oil, coinciding with the initial wave of sanctions enforced by the U.S. administration on Iran.
Brent crude futures were trading above $74 per barrel, despite experiencing a drop of more than 3% this week. Meanwhile, West Texas Intermediate (WTI) crude fell below $71 per barrel.
In an effort to counteract trade imbalances, Trump enacted tariffs on all imports from China, which is notably the largest consumer of crude oil globally. Additional protective measures are set to take effect on Monday, amplifying worries regarding the potential impact on oil import levels and overall demand.
The ongoing trade conflict, alongside the likelihood of its escalation, has raised apprehensions that it could restrict crude oil demand and lead to oversupply later in the year. Trump has also committed to ramping up U.S. oil production while maintaining sanctions against Iran, actions that may further constrict oil flows from this OPEC member.
In a recent analysis, RBC Capital Markets, led by Halima Cruvelt, indicated, “With the majority of the remaining Iranian oil exports directed to China, we are monitoring whether these imports will be included in the broader tariff negotiations between the United States and China.” The report elaborated, “However, questions linger regarding the duration and enforcement of these tariffs.”
This week witnessed significant volatility in crude prices. On Monday, prices surged following the imposition of tariffs on Canada and Mexico—key foreign suppliers of crude to the U.S.—before retreating when the tariff implementation was delayed by a month. These fluctuations have resulted in the lowest closing prices for crude this year, as the trade conflict with China raises fears over potential demand growth.
Notably, there are also indications of easing constraints in material markets. In Europe, crude oil prices have dropped to their lowest levels in several months, partly due to refinery maintenance work. Additionally, the spread between the two nearest Brent contracts has narrowed to 44 cents per barrel, a decrease from about one dollar at the end of the previous month.
Technical indicators suggest that the recent price declines may be overextended. The relative strength index (RSI) is nearing a nine-day low of 30 points, suggesting that oil is approaching a sell-off phase.
Overall, as geopolitical tensions and trade dynamics continue to evolve, market participants will remain vigilant in assessing their implications on crude oil prices and demand.
