- The Oil price holds key support of $74.00 as investors digest Trump’s tariff threats after he reversed proposed tariffs on Colombia.
- US President Trump urged OPEC to reduce Oil prices.
- China’s weak manufacturing sector activity weighs on Oil’s demand outlook.
West Texas Intermediate (WTI), futures on NYMEX, gains a firm-footing near $74.00 in Monday’s European session. The Oil price rises as the market sentiment turns cheerful after United States (US) President Donald Trump reverses tariff threats on its South American trading partner, Colombia. Trump takes back tariff threats after Colombia accepted the return of illegal immigrants from the US.
Investors should note that Colombia exports a significant amount of seaborne crude to the US. Technically, this development is negative for the Oil price, but it gains as the scenario indicates that Trump tariff threats are not as fearful as what market participants had anticipated earlier.
Last week, Trump also reversed the proposal of imposing tariffs on China, saying that he can reach a deal without slapping hefty tariffs. Market participants expect Trump will use tariffs to better negotiate against the US’s trading partners.
However, the broader outlook of the US Dollar remains uncertain as Trump reiterated that OPEC should cut Oil prices, which would hurt Russia’s finances and eventually lead to a truce between Russia and Ukraine.
"One way to stop it quickly is for OPEC to stop making so much money and drop the price of oil, and that war will stop right away," Trump said at the World Economic Forum (WEF) in Davos on Friday.
Also, China’s economic turmoil continues to weigh on Oil demand prospects. The National Bureau of Statistics (NBS) reported that China’s Manufacturing Purchasing Managers’ Index (NBS) declined to 49.1 in January from 50.1 in December. Economists expected the factory data to have expanded at a steady pace.
Brent Crude Oil FAQs
Brent Crude Oil is a type of Crude Oil found in the North Sea that is used as a benchmark for international Oil prices. It is considered ‘light’ and ‘sweet’ because of its high gravity and low sulfur content, making it easier to refine into gasoline and other high-value products. Brent Crude Oil serves as a reference price for approximately two-thirds of the world's internationally traded Oil supplies. Its popularity rests on its availability and stability: the North Sea region has well-established infrastructure for Oil production and transportation, ensuring a reliable and consistent supply.
Like all assets supply and demand are the key drivers of Brent Crude Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of Brent Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.
The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of Brent Crude Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.
OPEC (Organization of the Petroleum Exporting Countries) is a group of 12 Oil producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact Brent Crude Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.
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