WTI Spikes on Tariff Threats Ahead of OPEC Meeting

As tariffs loom over the oil industry, adding to geopolitical tensions, the price of crude has spiked during recent trading, but some market analysts see little room for further upside.

Conflicting Signals With Volatility

Crude prices soared at the start of the week following President Donald Trump's threats of secondary tariffs on Russian oil exports due to the slow progress on the Ukraine ceasefire.

Coupled with Trump's push for a nuclear deal with Iran, this led to a 3% gain in Brent crude on Monday to $75 per barrel. However, by Tuesday, prices had begun to pull back as Trump softened his rhetoric, and concerns over a potential economic slowdown from tariffs dampened demand expectations.

The start of April also marks the beginning of OPEC+ gradually lifting its production curtailments, leading analysts to suggest that prices could face downward pressure as supply increases and demand stagnates.

The economic situation presents a mixed outlook for oil price directionality. While the EIA reported that US production hit a 15-month low in January, it preceded Trump's push to increase production. Meanwhile, slower demand in Asia has prompted Saudi Arabia to cut its pricing to the region, as Chinese refiners cut back on purchases amid high stockpiles of refined petroleum.

A New Direction with Tariff Threats

Trump's secondary tariffs on Venezuelan oil have gained attention recently, but the country has the capacity to produce less than a million barrels per day. The tariff scheme could potentially serve as a model to target larger producers, such as Iran and Russia, that draw the White House's ire. Despite the threats, however, analysts believe that the economic situation could cap price increases. A poll of economists forecasts Brent crude to trade at an average of $72.94 per barrel this year, which is lower than the current price.

The Dallas Fed Energy Survey published last week forecast WTI prices to average around $68 per barrel this year. Expectations that tariffs will drive up oil prices have not panned out so far, which could be indicative of the potential impact of further tariffs. The US slapped a 10% levy on Canadian oil imports, prompting Canadian producers to cut prices to maintain their American buyers. If some of the geopolitical uncertainty is resolved, such as a peace agreement in Ukraine or Iran agreeing to Trump's demands, it could put additional downward pressure on crude prices.

WTI Cup and Handle Forming?

Price action in WTI suggests that a continuation to $73 could form the cup of a cup-and-handle (C&H) pattern, which would lead to a pullback to form the handle. Since the reversal followed a wedge pattern, the odds of further upside remain favourable. However, with a regional top forming at $72, if WTI falls below the wedge top of $68.50, it could weigh on prices and potentially trigger a drop towards $65 again.

Source: SpreadEx / Light Crude

Key Takeaways

Geopolitical tensions and tariff threats have supported crude prices higher, but the economic situation and a potential resolution of geopolitical uncertainties could ultimately cap further upside. Analysts also remain cautious, forecasting price levels below current levels for the remainder of the year, as OPEC+ is lifting its production cuts while demand stagnates.