Quarterly Outlook
Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?
John J. Hardy
Global Head of Trader Strategy
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Crude Oil Wipes Out 2025 Gains as Tariffs and Demand Weigh
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.
Recent commodity articles:
3 Feb 2025: COT Report: Mixed Week Seen Ahead of Trump's Tariff Offensive
1 Feb 2025: YouTube: Joining Kevin Muir on The Market Huddle podcast
31 Jan 2025: Commodities weekly: Strong January led by precious metals
29 Jan 2025: Agriculture sector rally led by coffee, corn and cattle
27 Jan 2025: COT Report: Commodity buying extends to fourth week
24 Jan 2025: Commodities weekly: Trump tariff threats and energy agenda in focus
23 Jan 2025: Crude oil weakens amid tariff uncertainty
22 Jan 2025: Gold and silver see fresh gains as Trump 2.0 era begins
20 Jan 2025: COT Report: Elevated commodities longs face short-term risks
17 Jan 2025: Commodities weekly: Strong January rally pauses ahead of Trump
15 Jan 2025: Q1 2025 Commodity outlook: A bumpy road ahead calls for diversification
14 Jan 2025: COT Report: Hedge fund long jumps to 17-month high led by crude, gas and metals
13 Jan 2025: Crude oil rally amid winter demand and Russian sanctions
10 Jan 2025: Commodities weekly: Strong start to the year led by energy and metals
7 Jan 2025: COT Report: Managed money's year-end positioning in forex and commodities
20 Dec 2024: Silver's resurgence in 2024: A precious metal with an industrial edge
17 Dec 2024: Investors cash in: Gold and silver see year-end profit taking
17 Dec 2024: Podcast: A wild ride in 2025 awaits
16 Dec 2024: COT Report: Agriculture in demand; Traders lift bets against the euro
13 Dec 2024: Commodities weekly: The forward curve and impact on returns
10 Dec 2024: Brazil's coffee crisis pushes Arabica to all-time high
9 Dec 2024: COT Report: Speculators bought crude and gold: euro shorts reach 4-year peak
6 Dec 2024: Commodities weekly: Copper rises on China optimism; OPEC delay signals crude weakness
3 Dec 2024: COT: Mixed week in commodities as dollar buying continued
Podcasts:
3 Feb 2025: If new Trump tariffs stick, markets have only just begun to react
31 Jan 2025: Does the market think Trump is bluffing?
29 Jan 2025: The DeepSeek winners emerge
27 Jan 2025: DeepSeeking missile strikes global markets
24 Jan 2025: Four days in, Trump continues to dominate headlines, but ...
20 Jan 2025: Trump 2.0 swings into action
17 Jan 2025: Brace for Monday, as a new era begins
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