US Tariffs, Economic Concerns Pressure Oil Prices Amid Sanctions and Market Volatility

Key Highlights

1. Crude Oil Prices Show Modest Gains
   • Brent: $76.41 (+0.30%), WTI: $73.38 (+0.29%), MCX February futures: ₹6,355 (+0.87%).
2. Tariff Plans Impact Market Sentiment
   • US aims to impose tariffs on commodities like steel, aluminum, and copper to boost domestic production.
3. Chinese Economic Weakness Weighs on Demand
   • PMI data shows contraction, raising concerns about reduced energy demand.
4. Sanctions on Russia Tighten Global Supply
   • US sanctions targeting Russian oil exports and tankers add bullish pressure to prices.

Crude Oil Prices Climb Amid US Tariff Plans

• Crude oil futures traded higher on Tuesday morning following the US President’s latest plans to impose tariffs on imported commodities such as steel, aluminium, and copper.
• At 9.51 am on Tuesday, April Brent oil futures were at $76.41, up by 0.30 per cent, and March crude oil futures on WTI (West Texas Intermediate) were at $73.38 up by 0.29 per cent.
• February crude oil futures were trading at ₹6,355 on Multi Commodity Exchange (MCX)during the initial hour of trading on Tuesday against the previous close of ₹6,300, up by 0.87 per cent, and March futures were trading at ₹6,319 against the previous close of ₹6,267, up by 0.83 per cent.

China’s Economic Slowdown Dampens Energy Demand

• Speaking at a congressional Republican event in Miami on Monday, the US President, Donald Trump, said he wants to impose tariffs on imported commodities such as steel, aluminium and copper, and on goods such as computer chips, semiconductors, and pharmaceuticals. The move is aimed at boosting the production of these products in the US.
• In their Commodities Feed for Tuesday, Warren Patterson, Head of Commodities Strategy of ING Think, and Ewa Manthey, Commodities Strategist, said oil prices came under pressure on Monday with the market and the broader complex unable to escape the sell-off seen in equity markets. Tariff headlines will also not be helping sentiment with reports that President Trump will place tariffs on steel, aluminium and copper imports, they said. 
• Despite the recent weakness in the oil market, the West Asian market continues to show relative strength with its unusual premium to Brent widening to more than $2 a barrel.

Sanctions on Russian Oil Tighten Supply Chains

• Crude and gasoline prices tumbled to 2-week lows Monday and settled moderately lower.  Crude prices were under pressure Monday due to the concern that weakness in China's economy will keep its energy demand depressed.  Also, Monday's stock rout sparked a risk-off sentiment in asset markets. Losses in crude were contained as the dollar index (DXY00) fell to a 5-week low.
• Weakness in China's economy is negative for energy demand and crude prices. The China Jan manufacturing PMI unexpectedly fell -1.0 to 49.1, weaker than expectations of no change at 50.1 and the steepest pace of contraction in 5 months.  Also, the Jan non-manufacturing PMI fell -2.0 to 50.2, weaker than expectations of no change at 52.2.
• Crude prices also have a negative carryover from last Friday when he reiterated his call for OPEC "to cut the price of oil," saying a decline in crude prices could starve Russia of revenue and put an end to the war in Ukraine.
• An increase in crude oil held worldwide on tankers is bearish for oil prices.  Vortexa reported Monday that crude oil stored on tankers that have been stationary for at least seven days rose by +13% w/w to 66.26 million bbl in the week ended January 24.
• Crude prices have carryover support from January 10 when the US imposed new sanctions on Russia's oil industry that could curb global oil supplies.  The measures targeted Gazprom Neft and Surgutneftgas, which exported about 970,000 bpd of Russian crude in the first 10 months of 2024, accounting for about 30% of its tanker flow, according to Bloomberg data.  
• The US also targeted insurers and traders linked to hundreds of tanker cargoes.  In addition, President Trump on Wednesday warned that he would impose additional sanctions on Russia if Russian President Putin doesn't negotiate on Ukraine.

Expert Opinion: West Asian Oil Premium Signals Regional Strength

• The outlook for new sanctions on Iranian and Russian crude exports could limit global oil supplies and is bullish for prices.  President Trump's pick for national security adviser, Mike Walz, vowed a return to "maximum pressure" on Iran.  Last Thursday, incoming Treasury secretary Bessent said he would be "100% on board for taking sanctions up," especially on Russian oil majors.