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Crude Oil Wipes Out 2025 Gains as Tariffs and Demand Weigh
Commodities 5 minutes to read
Ole Hansen
Head of Commodity Strategy
Key points
- After surging in early January, crude oil prices have now reverted to their initial levels due to renewed concerns about demand.
- A two-month buying spree by speculators is currently exerting downward pressure on prices as they engage in long liquidation.
- The trade dispute between the US and China has heightened demand concerns, particularly in China, due to its reliance on exports.
- OPEC+ is still set to increase production starting in April unless tariffs and sanctions significantly alter the demand outlook.
A rollercoaster month in global energy markets has seen WTI and Brent crude oil prices return to almost where they started the year. The near USD 10 rally during the first half of January was supported by a combination of strong winter-related demand for diesel and heating oil and, not least, the latest rounds of US sanctions on Russia’s oil industry, which went much further than expected. These developments helped tighten the market and reduce expectations for a well-supplied market in 2025.
However, from a strong start, the mood among crude oil traders has, in the past few days, shifted back to one of caution, with the focus now squarely on Washington and the increased uncertainty caused by a wave of Trump announcements following his inauguration. Not least among these is the prospect of tariffs threatening to erupt into a global trade war, which may lead to lower growth and, with that, lower demand for energy.
While 25% tariffs on Mexican and Canadian imports were postponed by 30 days, thereby helping to soften US crude and fuel prices, the trade dispute between the US and China has raised demand concerns—not least in China, an economy that has grown increasingly dependent on exports at a time of weak consumer confidence at home. The 10% across-the-board tariffs on Chinese goods were countered by China slapping levies on US goods, including crude oil and liquefied natural gas—the latter potentially lending a hand to Europe and its battle to refill depleted inventories this summer ahead of next winter.
Following a brief rally to a six-month high at USD 82.60, Brent has subsequently returned to challenge support around USD 74.60 and the midpoint of our 2025 projected USD 65 to USD 85 per barrel trading range. Additional weakness may see the global crude benchmark head towards the next key area of support near USD 71.
OPEC and its allies, meanwhile, remain on track to gradually restore output in monthly stages from April, at their latest meeting emphasizing their commitment to balancing the market, while focusing on compliance with existing output cuts and compensation for past overproduction. The group, in other words, was in no hurry to placate Trump’s call for the group to raise production and lower prices. For now, the alliance will be waiting for clarity on the potential negative impact on demand from tariffs, with the risk of tougher sanctions on Iran and Venezuela offsetting some of the impact.
In the short term, the risk of even lower prices exists, not least driven by selling from wrong-footed speculators who were net buyers of 308,000 contracts or 308 million barrels in a two month period up until January 28, at which point the first, albeit small, weekly reduction was seen.
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