Oil Prices Looking Down

Brent crude benchmark prices are down 2.0% to $72.86 this week, breaking below the support at $74.00–75.00 per barrel. Prices are now rapidly approaching the strong support zone at $68.00–70.00 per barrel. This downturn is not driven by a single factor but rather by a snowballing effect of negative developments accelerating the decline.

Disappointing macroeconomic data, including higher-than-expected initial jobless claims and weak services PMI last week, were compounded by Walmart’s (WMT) weak Q1 2025 forward guidance. Additionally, U.S. President Donald Trump reiterated on Monday that additional tariffs on Canada and Mexico could be introduced next week. The potential for rising tariffs is a direct path to recession, as the U.S. economy is already slowing under the Federal Reserve’s (Fed) hawkish stance. The tariff escalation by Trump is further pressuring the economy, leading to declines in both U.S. 10-year Treasury yields and the S&P 500 broad market index, as investors move out of stocks into cash.

Sensing the growing market turmoil, Trump softened his stance on Wednesday, avoiding a specific timeline for implementing tariffs on Canada and Mexico. This immediately halted the decline in the S&P 500, while oil prices also slowed their descent and began to recover on Thursday.

Supporting oil prices, U.S. crude inventories declined by 2.33 million barrels last week. Additionally, Trump revoked Chevron’s Venezuela license, originally issued by former President Joe Biden. Chevron’s production of 240,000 barrels per day in Venezuela provided some short-term support for prices. However, this recovery could be short-lived as macroeconomic concerns, rising tariffs, and geopolitical tensions continue to weigh on the market.

The U.S. economy is showing signs of cooling. The Q4 2024 GDP is expected to slow to 2.3% quarter-over-quarter from 3.1% in the previous quarter. The tariff situation with Canada and Mexico is likely to be clarified next week. U.S.-Russia talks are ongoing, and any progress in lifting sanctions could increase global oil supply, pressuring prices further. Additionally, a U.S.-Ukraine minerals deal could be signed this Friday during President Volodymyr Zelensky’s visit to Washington, adding another bearish factor for oil.

Large investors have been offloading oil-related assets, selling United States Oil Fund (USO) shares for $103.2 million last weekend and an additional $45.5 million this week. Their positioning suggests expectations of Brent crude falling further, likely to the $68.00–70.00 per barrel range.