Oil Prices Are Losing Momentum

Brent crude prices have risen by 1.4% to $73.34 per barrel this week, retreating from Wednesday’s peak of $73.98—the highest level since March 3. The price is now positioned between the support at $68.00–$70.00 and the resistance at $78.00–$80.00. A rebound towards $74.00–$75.00 was expected, but a further significant increase appears unlikely as large investors remain in their long positions to capitalise on the price recovery without adding new bets.

The United States Oil Fund (USO) recorded modest net inflows of $12.8 million last week, followed by a substantial $150 million on Monday at an average price of $72.50 per barrel. While these trades are currently profitable, investors have started to close positions, reducing weekly net inflows to $125.1 million as of Tuesday. It is likely that inflows will be fully erased around the $74.00–$75.00 range, mirroring the short bets placed in January and February when Brent crude fell from $80.00 to $75.00 per barrel.

The market has shown resilience in preventing prices from dropping below $68.00–$70.00, supported by positive developments in the U.S. economy. Recent data indicated a rise in retail sales in February, while the Atlanta Federal Reserve’s GDPNow model revised its Q1 2025 GDP contraction estimate to -1.8% from -2.4%. Additionally, the U.S. services PMI released on Monday exceeded expectations. This improving economic outlook was reinforced by the Federal Reserve’s dovish stance and a dramatic reduction in the pace of its balance sheet drawdown from $25.0 billion to $5.0 billion per month starting April 1. Fed Chair Jerome Powell reassured markets that the inflationary impact of tariffs would be temporary and that recession risks remain low.

Brent crude, which closed last week at $72.21 per barrel, has continued to climb, supported by news of scheduled U.S.-China trade talks. The Wall Street Journal reported that the scope of reciprocal tariffs set to be introduced by the U.S. on April 2 may be narrowed, potentially exempting certain industries. Meanwhile, Donald Trump has threatened to impose 25% tariffs on any nation purchasing oil from Venezuela, with China being the primary target.

Oil prices received additional support from a surprise decline in U.S. crude inventories, which fell by 3.34 million barrels last week, against expectations of a 1.50 million barrel increase. This helped Brent crude reach $74.00 per barrel by Wednesday’s close. However, Trump’s announcement of 25% tariffs on U.S. car and auto parts imports triggered a 1.44% drop in the S&P 500 index and prompted oil prices to retreat as investors braced for retaliatory trade measures from other exporting nations.

Given these dynamics, caution is warranted. There is currently no fundamental catalyst to push oil prices above the $75.00 resistance level. While an improving U.S. economy provides a base for stability, a further upside would require a significant breakthrough in U.S.-China trade relations or a reversal of OPEC+ plans to increase production quotas in April—both of which remain unlikely.