Oil Prices Fall Amidst U.S, Colombia Tariffs Hike Contest
Oil prices fell during early trading hours on Monday as the U.S. and Colombian governments engaged in a tariff hike contest. The President Donald Trump administration imposed 25% tariffs on Colombia, which is set to increase to 50% in a week after Colombia refused entry to two US military planes attempting to deport illegal immigrants.
Trump is also pushing the Organisation of Petroleum Exporting Countries (OPEC) to cut oil prices amidst sanctions against Russian production and oil flows. The global commodities market have become bearish amidst growing fears of a European recession and anticipation surrounding the European Central Bank’s upcoming interest rate decision.
Brent crude decreased by 0.6%, trading at $77.19 per barrel while the US benchmark West Texas Intermediate (WTI) decreased by 0.4%, reaching $74.06 per barrel.
Last week, oil prices saw first weekly decline of the year with Brent settling a little more than 2.8% lower than the previous week. And this downward pressure has continued in early morning trading today, ING said in a note.
The Colombian government has retaliated with the president ordering similar tariffs of 25%. Colombia is the fourth largest supplier of crude oil to the US, exporting a little more than 200k b/d.
Colombia’s key export grades are heavier crudes, and so refiners in the US Gulf Coast will either have to find alternatives or face higher costs, ING commodities analysts said. The US dollar strength following this escalation will also be providing headwinds to oil and the broader commodities complex.
Trump, OPEC and Columbia
Oil prices began the week with a downward trend following US President Donald Trump’s statements on new trade policies and his call for Saudi Arabia and the Organization of the Petroleum Exporting Countries (OPEC) members to lower oil prices.
In a statement on his Truth Social account yesterday, Trump announced his directive to impose a 25% tariff on all goods entering the US from Colombia, adding that this rate would increase to 50% within a week.
These sanctions have raised concerns about significantly higher prices for US consumers and cost pressures on import-dependent firms, thereby exerting downward pressure on oil prices.
Furthermore, Trump’s remarks during the 55th Annual Meeting of the World Economic Forum (WEF), which he attended via video conference last week, also supported the decline in prices.
He emphasized that Saudi Arabia and OPEC must reduce oil prices, stating, ‘I will also ask Saudi Arabia and OPEC to reduce the cost of oil. It needs to come down; I was surprised it wasn’t reduced before the election. If prices had fallen, the war would have ended immediately. Now the price is high enough to sustain the war.’
OPEC’s crude oil production in December last year rose by 26,000 barrels per day compared to the previous month, reaching 26.741 million barrels per day.
Additionally, Trump’s policies to increase US oil and gas production continue to ease supply concerns in the global oil market, contributing to the downward movement in prices.
Meanwhile, concerns about a recession persist in Europe. Although the Eurozone Manufacturing Purchasing Managers’ Index (PMI) exceeded expectations in January, reaching 46.1, it continues to show weak performance.
In Germany, the manufacturing PMI remained at a low level of 44.1. Experts suggest that the European Central Bank’s (ECB) fight against inflation may become more challenging, with prolonged monetary tightening potentially heightening recession risks. This scenario negatively impacts the global demand outlook, increasing pressure on prices.
On the other hand, the ECB’s upcoming interest rate decision this week is anticipated to have a decisive impact on oil markets. Lower interest rates are expected to boost oil demand.
Putting further pressure on oil are signs that maybe the latest US sanctions are not having a significant impact on Russian oil exports.
Tanker rates appear to be coming off from their recent highs following the announcement of sanctions against Russia, suggesting that Russian oil is still flowing through the use of Russia’s shadow tanker fleet, despite a large share of this fleet being sanctioned. $9.6bn P&ID Scam: I’ve No Witness to Call, Briton Tells Court
