[WORLD] Oil prices have faced significant volatility this week, with the market set to experience its largest weekly decline since October 2024. This drop is primarily driven by two key factors: uncertainty surrounding U.S. tariff policies and an increase in global oil supply.
As of Friday morning, Brent futures have dropped by 4.9% for the week, heading toward their most considerable weekly loss since mid-October. U.S. West Texas Intermediate (WTI) futures also saw a decrease of 4.8% for the same period. While oil prices showed slight recovery on Friday, rising by 0.24% for Brent and 0.18% for WTI, the overall sentiment remains bearish.
Tariff Uncertainty and Its Impact on Oil Demand
The primary concern affecting the oil market is the fluctuating trade policies of the U.S. As the world's largest oil consumer, any uncertainty regarding U.S. tariffs sends shockwaves through global oil markets. According to Vandana Hari, founder of Vanda Insights, "It looks like the financial markets are in full panic mode, no longer easily pacified by Trump’s one-month postponements and exemptions on import tariffs." This uncertainty is not only creating market anxiety but also stalling business decisions, further affecting economic growth and oil demand.
One significant development this week was the suspension of the 25% tariffs on most goods from Canada and Mexico, a decision made by U.S. President Donald Trump. However, tariffs on steel and aluminum are still set to take effect, with the suspension extending only until April 2, 2025. Furthermore, Canadian energy products remain subject to a 10% levy.
These tariffs are seen as detrimental to economic growth, thereby dampening the demand for oil. As a result, the oil market has struggled to find direction, with prices hovering near four-month lows, vulnerable to further downward momentum.
Increased Oil Supply Pressures Prices
In addition to tariff concerns, the oil market is also facing rising supply pressures. The Organization of the Petroleum Exporting Countries (OPEC+) and non-OPEC producers, including Russia, have already announced an increase in output. This week, OPEC+ confirmed a planned output increase for April 2025, adding 138,000 barrels per day to the global market. This decision follows the group's ongoing commitment to balance oil production levels with global demand.
Fitch’s BMI research unit has warned that "the risks to oil prices remain tilted to the downside with new supply from OPEC+ and non-OPEC producers expected to push the market well into an oversupply." The surge in supply, combined with weakening demand due to tariff-induced uncertainty, has created a scenario where oil prices are under considerable downward pressure.
In line with these expectations, Brent prices fell to their lowest level since December 2021 earlier this week. This drop came after a report showing a rise in U.S. crude inventories, further adding to market fears of an oversupplied oil market.
Geopolitical Tensions and Ongoing Uncertainty
Despite the concerns about rising supply and tariff-induced economic slowdown, there are still geopolitical factors that are influencing the oil market, particularly regarding Iran. The U.S. has taken a hard stance against Iranian oil exports, with plans to enforce stricter sanctions. U.S. Treasury Secretary Scott Bessent has indicated that the U.S. intends to "shut down Iran's oil sector and drone manufacturing capabilities," with additional measures, such as inspecting Iranian oil tankers at sea, potentially coming into play.
The U.S. administration's approach to curbing Iranian oil exports is part of its broader strategy to reduce global oil supply and exert "maximum pressure" on the Iranian government. While this may temporarily provide some support to oil prices, it is uncertain how long such measures can offset the broader downward momentum driven by rising global supply and economic concerns.
Outlook for the Oil Market
Looking ahead, the outlook for oil prices remains uncertain. On one hand, the tariff uncertainty and rising oil supply pose significant challenges to price stability. On the other hand, geopolitical factors, particularly the ongoing efforts to curb Iranian oil exports, could provide some support to the market in the short term.
The combined impact of these factors means that the oil market is likely to remain volatile in the coming weeks. Traders and analysts will continue to monitor developments in the U.S. tariff policy, OPEC+'s decisions on output, and geopolitical tensions that could impact supply.
As Vandana Hari notes, "crude oil is stuck around four-month lows, albeit vulnerable to further slides," suggesting that the market remains fragile, with prices poised to react sharply to any new developments.
For now, oil prices are caught between two competing forces: the uncertainty of U.S. trade policies and the pressure of rising global oil supply. While geopolitical tensions, particularly with Iran, may offer some temporary relief, the overall market sentiment suggests that oil prices are likely to face continued downward pressure in the near future.
While oil prices saw slight recoveries on Friday, the ongoing concerns about tariff uncertainty and the increase in global supply are expected to keep prices in a bearish trend for the week. The market's ability to rebound will depend heavily on the resolution of tariff-related issues and any developments in geopolitical tensions surrounding oil-rich nations like Iran.
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