DTN Oil Update
Oil Futures Down on Tariffs and High Inflation Outlook
HOUSTON (DTN) -- Oil futures dipped on Monday as upcoming trade tariffs to be imposed by the Trump administration on multiple countries, including China, raised concerns about their impact on U.S. inflation.
The March NYMEX WTI futures contract prices for March delivery dropped by $1.57 to $73.09 bbl, while the front-month ICE Brent futures contract fell by $1.51 to $76.99 bbl. Both crude benchmarks were 3% below average prices recorded so far in the year, as market sentiment turned bearish following President Donald Trump's swearing-in for a second term last week.
Sluggish global demand due to China's Lunar New Year also contributed to the bearish sentiment in the oil futures market. Trump may announce his tariff trade plan for China around Jan. 28-Feb.4, which coincides with the period of the Chinese festivities, according to a report by ANZ Research.
The Trump administration is expected to impose a 10% or 60% trade tariff on imported goods from China, and 25% on products manufactured by its main trade partners Mexico and Canada.
One potential effect of these actions on the U.S. economy is an increase in consumer prices, which could add more pressure to the already sticky inflation and prompt the Federal Reserve to consider additional interest rate cuts this year.
Sunday, Jan. 26, President Donald Trump threatened to impose retaliatory tariffs of 25% on imported goods from Colombia, after the Colombian government refused to accept deported immigrants brought back by two U.S. military flights. However, the Trump administration later confirmed that Colombia had agreed to the conditions.
Colombia is one of the largest oil producers in Latin America and a key supplier of heavy sour crudes for U.S. Gulf and West Coast refiners.
U.S. refiners also import large volumes of Canadian and Mexican crude oil, which are expected to be targets of retaliatory trade tariffs from the Trump administration.
Downstream, February RBOB futures contract dropped by $0.198 to $2.0292 gallon while the ULSD futures contract for February delivery fell by $0.545 to $2.4617 gallon, despite strong seasonal demand being reported.
The U.S. Dollar Index edged down dropped by 0.07 to 107.19 against a basket of foreign currencies.
Maria Eugenia Garcia can be reached at Maria.Garcia@dtn.com