 "How to trade Crude oil amid Donald Trump's tariff threat? Strategy here")
Crude oil could rally on tariffs threats in short-term but fundamentals don't support higher prices in long term
Oil prices: Crude oil prices clocked the biggest intraday rally in four months on Monday, driven on the news of 10 per cent tariffs imposed by Whitehouse on Canadian crude oil and products while Mexico was levied with 25 per cent. However, by the end of Monday, Trump took a U-turn to delay the tariffs by 30 days. WTI contract had opened up 3.6 per cent in Asian trade but, by late trading in New York, was briefly down on the day before a modest bounce into the close to be up 0.5 per cent.
Trumps tariffs on Crude oil & products
Mexico accounts for about 11 per cent of America’s total petroleum exports, while it accounts for about 11 per cent of total crude oil imports into the United States. On the other hand, Canada exports 4.1 million barrels per day of petroleum products to the US and accounts for more than half of America’s total petroleum imports on a yearly basis. Hence, taxing these two countries would feel a direct pinch to the US consumers with in a week. That’s why the delay in tariffs looks a tactical play in trying to negotiate the deal.
Economic data
Monday's US economic news was better-than-expected and bullish for energy demand and crude prices. The Jan ISM manufacturing index rose 1.7 to 50.9, stronger-than-expectations of 50.0 and the highest level in 2-1/3 years. Also, December construction spending rose 0.5 per cent month-on-month, stronger than expectations of 0.2 per cent M-o-M. But China’s private factory activities in January showed some concern as index fell to 50.1 from 50.5. Demand concerns remain pertinent as China's 2024 crude imports fell 1.9 per cent Y-o-Y to 553 MMT. China is the world's biggest crude importer, and the tariffs could decelerate its GDP by 0.5-0.9 per cent, which could dent it crude demand significantly.
OPEC+ JMCC
OPEC+ held its Joint Ministerial Monitoring Committee (JMMC) meeting yesterday, and, as widely expected, the group recommended no change to its output policy. This suggests that the group is likely to go ahead with the unwinding of their additional voluntary supply cuts from April. The group is scheduled to bring back around 2.2 million barrels per day of supply over an 18-month period starting in April. Obviously, the return of this supply will still be dependent on market conditions. The next JMMC meeting will be held on April 5. The primary survey from Bloomberg ahead of the OPEC monthly report showed OPEC production fell by 70,000 b/d M-o-M to 27.03 million b/d in January. Iraq led the declines, with its output falling by 110,000 b/d to 4.01 million b/d. This reduction was largely due to a fire at the Rumaila oilfield.
Oil Price Outlook
We expect oil market to remain oversupplied in 2025, unless Opec+ extends its product cut policy by end of 2025. The notable supplies are expected to rise from the US, Canada, Guyana, while Saudi, UAE, Iraq Angola, and Nigeria would be looking replace the lost barrels from sanctions hit Iran, Venezuela, and Russia.
In the short term, Oil’s fundamentals could be overshadowed as the market is largely sentiment-driven, with tariffs playing a significant role in shaping price direction, but long term outlook remain bearish for oil prices.
WTI Crude oil Mar: Support: $70, Resistance: $76
MCX Crude Feb: Support: 6150, Resistance: 6565.
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Disclaimer: Disclaimer: Mohammed Imran is a research analyst at Mirae Asset Sharekhan. Views expressed are his own.