DTN Oil Update
Oil Futures Edged Down, Tariffs Concerns Persist
HOUSTON (DTN) -- Oil futures inched down Friday morning, as market participants continued in a wait-and-see mode driven by concerns about trade tariffs the United States is expected to impose on imports from Mexico and Canada on Feb. 1.
The front-month NYMEX WTI futures contract fell by $0.03 to $73.08 per barrel (bbl), and the March ICE Brent futures contract was $76.78 bbl, down by $0.09. February RBOB futures contract fell by $0.0008 to $2.0366 gallon while, in the opposite direction, ULSD futures contract for February delivery gained $0.0205 to $2.4959 gallon, amid strong demand fundamentals.
Concerns about the possibility that trade tariffs could affect imports of Canadian and Mexican crudes, which are consumed by U.S. refineries, have set a bearish tone in the oil futures market since U.S. President Donald Trump took office last week.
Yesterday, Trump confirmed that the United States will levy a 25% trade tariff on imported goods from its two main trade partners, Canada and Mexico.
After the announcement, the U.S. dollar index gained ground against a basket of foreign currencies. This morning, the U.S. dollar index rose by 0.64% to 108.28, reaching a two-week high.
"The new administration's dealing of this US-Canada-Mexico situation will likely be used by markets as a benchmark for Trump's trade policy moving ahead, and should therefore have large repercussions for global FX," Francesco Pesole, FX Strategist at ING Research, said in a report.
"If Trump doesn't deliver on his threat by tomorrow, we should see the dollar depreciate not just against CAD and MXN but also with other currencies that are embedding tariff risks (like AUD, NZD, EUR)," Pesole said.
The oil futures market is also awaiting the first OPEC meeting of the year scheduled for Feb. 3. The oil cartel is expected to define its position against President Donald Trump's demand to lower global crude prices after the president claimed last week that this could help to end the war in Ukraine.
During its December meeting, OPEC agreed to extend production cuts of 1.65 million bpd until the end of March, and 2 million bpd until December 2026 due to weak demand from China and ample supplies.
However, if OPEC decides to alter its strategy, oil futures will be under pressure, amid weak global oil demand.
This morning, the Bureau of Labor Statistics reported that the Personal Consumption Expenditures index for December increased 0.3% above 0.1% reported in November. The PCE price index was in line with market expectations.
The core PCE index, which excludes volatile energy and food prices, was 0.2% in December, also in line with market consensus.
The PCE price index -- the preferred inflation gauge of the Federal Reserve -- has a broader scope compared to CPI data, as it measures the change in goods and services consumed by all households. The CPI index measures the change in out-of-pocket expenditures of all urban households.
Maria Eugenia Garcia can be reached at Maria.Garcia@dtn.com