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    Oil Hikes as Tariff Fears Spark Supply Concerns

    February 3, 2025

    Key Points:

    • WTI crude climbed 1.39% to close at $74.183 after hitting a high of $75.158.
    • The intraday low was $73.473, with an earlier dip to $71.923 reflecting market volatility.

    Oil prices climbed on Monday, with WTI crude reaching $75.158 per barrel before closing at $74.183, driven by concerns over supply disruptions following U.S. tariffs on Canada, Mexico, and China. The rise was tempered by demand worries and pressure on OPEC+ to increase output.

    WTI crude rallied sharply early in the session before facing resistance at $75.158, eventually settling at $74.183, marking a 1.39% gain on the day.

    Picture: Crude oil surges to 75.15 before stabilising near 74.18, with bullish momentum, as seen on the VT Markets app.

    Volatility was evident, with an intraday low of $73.473 and an earlier drop to $71.923 before prices rebounded. While supply concerns pushed prices higher, weaker demand expectations and rising refining costs prevented further gains.

    Tariffs Raise Concerns Over Supply Disruptions

    The latest U.S. tariff measures imposed a 25% duty on Mexican energy imports and a 10% duty on Canadian energy products. Canada and Mexico together account for about 25% of U.S. crude imports, making them essential suppliers for U.S. refiners.

    The tariffs are expected to raise the cost of importing heavy crude, which is critical for gasoline and heating oil production. Refiners face narrowing margins as these costs increase, potentially leading to reduced output and supply adjustments.

    Refiners may initially absorb the increased costs, preventing an immediate supply shock. However, prolonged trade disputes could reshape crude flows and put additional strain on refining margins, potentially shifting market dynamics in the coming months.

    OPEC+ Faces Pressure but Sticks to Gradual Output Plan

    OPEC+ remains under pressure to respond to changing market conditions. While the U.S. administration has urged the group to boost production, delegates have indicated that OPEC+ will maintain its existing gradual output increase strategy.

    The cartel is unlikely to make significant production adjustments in the near term, as it monitors demand signals and assesses the impact of trade policies on global crude consumption.

    Oil prices remain in a short-term uptrend as refiners adjust to higher costs, but long-term risks tied to weaker global demand and potential OPEC+ production adjustments could create volatility.

    Further developments in U.S. trade policy and shifts in global energy supply will play a crucial role in determining the next breakout or pullback in crude prices.

    Market participants will be closely watching refiners’ response to the tariff impact and any signals from OPEC+ regarding possible adjustments to output policy.

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