Oil prices rose nearly 2 percent on Monday following a third consecutive week of declines, even as investors expressed concerns that U.S. President Donald Trump could initiate a trade war.
Brent crude futures concluded at $1.21, or 1.6 percent, reaching $75.87 a barrel, while U.S. West Texas Intermediate crude increased by $1.32, or 1.9 percent, to $72.32. These gains come after futures experienced a decline of 2.8 percent last week, driven by anxieties surrounding global trade.
Potential tariffs loom
Trump is anticipated to sign an executive order regarding tariffs later on Tuesday, Reuters reported. This action could heighten the risks associated with a multi-front trade war. Wall Street’s primary indexes finished higher on Monday.
A week earlier, Trump announced tariffs targeting Canada, Mexico, and China, though he suspended those for the neighboring countries the following day. Such tariffs could potentially hinder global economic growth as well as energy demand.
China’s response to trade tensions
China’s retaliatory tariffs on certain U.S. exports are set to take effect on Monday, with no visible advancement in discussions between Beijing and Washington. Oil and gas traders are actively seeking waivers from Beijing for U.S. crude and liquefied natural gas (LNG) imports.
Additionally supporting oil prices, Russia’s Federal Antimonopoly Service may implement a one-month ban on gasoline exports by large producers to stabilize wholesale prices ahead of the crop-sowing season, as reported by state news agency TASS on Friday.
Trump mentioned on Sunday that the U.S. is making headway with Russia toward ending the Ukraine conflict. Russia’s key representative for U.S. relations stated on Monday that all of President Vladimir Putin’s conditions must be fully met before the war can conclude.
Impact of sanctions on oil trade
Sanctions imposed on Russian oil trade on January 10 have disrupted supplies to Moscow’s leading clients, China and India. Washington has also intensified its pressure on Iran in the previous week, with the U.S. Treasury imposing new sanctions on several individuals and tankers involved in shipping Iranian crude oil to China.
Meanwhile, U.S. crude oil and gasoline stockpiles were anticipated to have increased last week, while distillate inventories likely experienced a decline, according to a preliminary Reuters poll.
Tariffs heighten inflationary concerns
The imposition of tariffs has amplified fears of inflation, as elevated import costs can result in higher prices for goods and services. Investors typically regard commodities like crude oil as hedges against inflation, which leads to increased demand and higher prices.
While the immediate effect of these tariffs on oil and gas prices might be limited, the broader consequences for the energy sector could be substantial.
China demand concerns grow on soft inflation
China’s recent inflation data for January paints a bleak picture regarding the country’s economic recovery, thereby applying downward pressure on global oil prices. The consumer price index (CPI) saw a moderate rise in January, while the producer price index (PPI) experienced continuous declines.
This data indicates ongoing weakness in both household spending and industrial activity, which are key drivers of oil demand in the world’s second-largest economy. A declining PPI suggests persistent challenges within the manufacturing sector, a significant consumer of crude oil. With Chinese factories contending with prolonged deflationary pressures, diminished industrial output is likely to restrict demand for oil and refined products such as diesel, further impacting prices.
Moreover, global markets are closely monitoring China’s policy response. Weak inflation may prompt Beijing to introduce additional stimulus measures, such as interest rate reductions or infrastructure investments, which could ultimately boost oil demand.
