Oil prices at their lowest level in a year – Cause, the intensification of the US-China trade war!
Crude oil prices fell to their lowest level since December 31, 2024, amid an escalation in the US-China trade war. Investors are increasingly concerned about a slowdown in global economic growth and weakening energy demand in China, the world's largest oil importer.
On Tuesday, China's State Council Tariff Commission announced that it would impose a 15% tariff on coal and liquefied natural gas (LNG) from the US, as well as a 10% tariff on US crude oil, agricultural equipment and certain vehicles, effective from February 10. In addition, data from the US Energy Information Administration (EIA) revealed that US crude oil inventories had increased far beyond market expectations, further indicating weakened demand.
On Wednesday, West Texas Intermediate (WTI) crude futures fell 2.3% to $71 a barrel, while Brent crude futures fell 2.09% to $74.61 a barrel. Both oil benchmarks saw a slight rebound in Thursday's Asian session but remained at their lowest levels this year.
Oil prices under pressure as US inventories rise
Crude oil prices have been on the decline after U.S. inventory data showed that stocks had increased for a second straight week. Crude oil inventories rose by 8.66 million barrels in the week ended Jan. 31, well above expectations for a 1 million-barrel increase. That followed a 3.5 million-barrel increase the previous week, suggesting weakening demand. U.S. crude inventories had previously fallen for nine straight weeks between late November and early January, pushing oil prices to five-month highs, peaking in mid-January.
Political factors have also weighed on crude markets. Last month, U.S. President Donald Trump urged Saudi Arabia and OPEC to lower oil prices while reaffirming plans to increase U.S. oil supplies. This week, Trump imposed 10% tariffs on Chinese goods, prompting retaliation from China and exacerbating concerns about slowing demand in the world's two largest economies. The White House has also threatened to impose 10% tariffs on Canadian crude, although Trump has postponed the decision for 30 days for further negotiations.
Geopolitical tensions remain a growing factor
Despite the current slump in oil prices, geopolitical tensions in the Middle East could continue to provide support. US President Trump has proposed taking control of Gaza, a move that could intensify regional conflicts. He is also expected to tighten sanctions on Iran, having declared his intention to reduce Tehran's oil exports to zero.
Iran accounts for 24% of oil reserves in the Middle East and 12% of global reserves, according to the EIA. Its oil exports have increased since 2022, following Russia's invasion of Ukraine, with current supplies reaching 1.5 million barrels per day, or 1.4% of global production. However, a report by S&P Global noted: "Donald Trump's electoral victory as US president, as well as the ongoing conflict in the Middle East, are likely to hamper Iranian oil growth and threaten the country's plans to increase its production capacity."
Iran has urged OPEC to unite against potential U.S. oil sanctions. On February 3, OPEC+ agreed to continue with its plan to gradually increase supply from April, removing EIA from its list of sources for monitoring production.
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