Oil Prices Dip Amid Rising U.S. Stockpiles and Trade War Concerns

Oil prices fell on Wednesday as concerns over rising U.S. crude stockpiles and a potential escalation in the U.S.-China trade war weighed on market sentiment, despite renewed efforts by U.S. President Trump to curb Iranian crude exports.

Market Movement

• Brent crude futures dropped 66 cents (-0.87%) to $75.54 per barrel (1007 GMT).
• West Texas Intermediate (WTI) declined 61 cents (-0.84%) to $72.09 per barrel.

On Tuesday, WTI saw a 3% intraday drop, hitting its lowest since December 31, after China announced retaliatory tariffs on U.S. oil, LNG, and coal. However, prices rebounded after Trump reinstated his “maximum pressure” campaign on Iran, which previously pushed Iranian crude exports near zero.

Key Market Concerns

1. U.S.-China Trade War Impact on Oil Demand

The renewed tariff conflict between the U.S. and China has raised fears of slower economic growth and reduced oil demand.

• Bjarne Schieldrop, Chief Commodities Analyst at SEB, stated: “Trump tariff chaos and trade war is no good for global growth and oil demand growth. Business investments and consumer spending will likely fall in the face of these highly erratic and growth-negative actions.”
• The uncertainty over trade policies could dampen global energy consumption, weighing on oil prices.

2. Iranian Oil Sanctions & Supply Risks

• Iran’s oil exports generated $53 billion in 2023 and $54 billion in 2022.
• OPEC data shows Iranian output in 2024 at its highest level since 2018.
• Trump’s previous sanctions had reduced Iran’s exports to near zero.
• If new sanctions are imposed, a supply squeeze could drive oil prices up.
  • Ahmad Assiri, research strategist at Pepperstone, noted: “Should these sanctions be reimposed, the resulting supply squeeze could sustain the upward momentum in oil prices, particularly amid slower-than-expected supply adjustments from OPEC+.”

3. Rising U.S. Crude Inventories Signal Weak Demand

• The American Petroleum Institute (API) reported:
  • Crude stocks rose by 5.03 million barrels (week ending Jan. 31).
  • Gasoline inventories increased by 5.43 million barrels.
  • Distillate stocks fell by 6.98 million barrels.
• Higher U.S. stockpiles indicate weaker demand, adding further downside pressure on oil prices.
• The official U.S. government oil inventory report is set for release at 1530 GMT on Wednesday.

Market Outlook

Oil prices are currently caught between:

• Trade war concerns dampening demand, and
• Potential supply disruptions from Iranian sanctions.

If U.S.-China tensions escalate, further demand-side weakness could drive prices lower. However, if Trump reimposes sanctions on Iran, supply constraints could push prices higher.

Investors will closely watch U.S. inventory data and developments in the Middle East to gauge market direction.