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Oil prices edged higher in Asian trade on Friday, benefiting from dip buying, but remained on track for their second consecutive week of losses. Investors remained cautious over trade tariffs under U.S. President Donald Trump, which could disrupt global demand, particularly in China.
- Brent crude (March contract): +0.4% at $77.21 per barrel
- WTI crude: +0.5% at $73.13 per barrel
- Weekly decline: Brent and WTI down between 1.7% and 2.3%
Key Market Drivers
1. Trump’s Tariff Plans Weigh on Market Sentiment
- Trump confirmed on Thursday that his 25% tariffs on Canada and Mexico will take effect on Saturday.
- He also threatened the BRICS nations, including top oil importer China, with 100% tariffs over their attempts to replace the U.S. dollar in trade.
- A 10% duty on Chinese imports could also be imposed starting Saturday.
- While Trump is still debating whether to include oil imports in the tariffs, doing so could increase U.S. gasoline prices and fuel inflation.
2. Market Uncertainty Over AI-Driven Energy Demand
- Investors questioned whether AI-driven growth will significantly increase energy consumption.
- This added to bearish sentiment, particularly as oil demand forecasts remain uncertain.
3. Bigger-Than-Expected U.S. Crude Inventory Build
- Recent data showed a larger-than-expected build in U.S. crude inventories, indicating weaker demand and adding downward pressure on prices.
4. U.S. PCE Inflation Data in Focus
- Investors are awaiting December’s Personal Consumption Expenditures (PCE) price index, the Federal Reserve’s preferred inflation gauge.
- The U.S. dollar strengthened ahead of the data, limiting oil price gains.
- The Federal Reserve kept rates unchanged this week but struck a hawkish tone, warning about persistent inflation risks—which could impact future rate cuts and oil demand.
Market Outlook
Despite Friday’s gains, oil prices remain under pressure from geopolitical risks and economic uncertainty. Investors will closely monitor:
Trump’s tariff policies and potential impact on global trade
OPEC+ meeting on February 3
U.S. inflation trends and Federal Reserve policy stance
If Trump includes oil in his tariffs, it could significantly disrupt supply chains and add to inflationary concerns, further complicating the global economic outlook.
