"Oil Prices Edge Lower as Concerns Over Tariff Impact Grow"

Oil prices have been on a downward trajectory as concerns over the impact of recent tariff announcements by the Trump Administration continue to grow. The tariffs on Canada, Mexico, and China are expected to slow down the U.S. economy, which is the world's largest. This economic slowdown could dampen oil demand in the U.S. and globally. For instance, the S&P 500 index fell by nearly 2% on the first trading day of March, erasing nearly all the 6% gain since Election Day. The Dow Jones Industrial Average (DJIA) slumped by 1.5%, and the Nasdaq composite dipped by 2.6%. This economic fallout is likely to reduce oil demand in the short term.

The uncertainty surrounding the tariff fallout and its impact on economies and oil trade flows has led to a risk-off mood among money managers and hedge funds. They are currently dumping bullish positions in the two most traded petroleum futures contracts, Brent and WTI. For example, in the week to February 25, selling of crude oil was "particularly aggressive," according to Ole Hansen, Head of Commodity Strategy at Saxo Bank. This risk-off sentiment could lead to a further decline in oil prices in the short term.



Despite the short-term uncertainties, forecasters have not downgraded their estimates of global oil demand growth this year. Demand is generally expected to rise by between 1 million bpd and 1.4 million bpd, with OPEC being the most bullish with a 1.4 million bpd growth projection for both 2025 and 2026. This suggests that the long-term demand for oil is expected to remain robust.

OPEC+ producers have announced a gradual and flexible return of the 2.2 mbd voluntary adjustments starting on April 1, 2025. Initially, OPEC+ will return 138,000 bpd to the market in April, but this increase may be paused or reversed subject to market conditions. This gradual return of supply and the expected non-OPEC+ output growth this year are set to keep oil from price spikes, ensuring a stable supply in the long term.

The U.S. "maximum pressure" campaign on Iran aims to reduce Iranian oil exports to zero, which could offset lower demand growth in case of an economic downturn. Additionally, the potential easing of some U.S. sanctions on Russia as the Trump Administration pivots from supporting Ukraine to siding with Moscow about possible pathways to end the war could further impact global oil supply dynamics. These geopolitical factors will continue to influence oil supply and demand in the long term.

In summary, the recent tariff announcements by the Trump Administration are likely to have a short-term negative impact on global oil demand due to economic slowdown and risk-off sentiment in the oil market. However, in the long term, the gradual return of OPEC+ supply and robust demand projections suggest that oil supply and demand dynamics will remain stable.