Oil Markets Headline Driven, but Fundamentals to Return Next Week

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Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--Crude oil prices may be reacting to headlines more than fundamentals, but the situation could change drastically next week when President Donald Trump vows to make good on his sweeping tariff threats.

West Texas Intermediate (WTI), the U.S. benchmark for the price of oil, was trending lower to start the trading day on Wednesday, moving in the $73-per-barrel range on word that the U.S. central bank would stand pat on interest rates as part of its ongoing fight to curb post-pandemic inflation.

After a range-bound year in 2024, crude oil prices have been on a wild ride to start a new year that saw the return of Trump to the White House. Swings of plus or minus 3% have not been uncommon so far, with WTI trading as high as $78 per barrel to as low as $72.50.

"Markets and investors' sentiment are still characterized by uncertainties and by the resultant inclination to react to headlines, rather than take a longer-term view," wrote Tamas Varga, an analyst for London oil broker PVM.

Trump has thrown a spanner into the gears with a flurry of executive orders and a weekend standoff with Latin American ally Colombia over deportee transfers. The countries exchanged tit-for-tat tariff threats over the weekend before Colombian President Gustavo Petro backed down.

Colombia is one of the top 10 crude oil exporters to the U.S., where the refinery slate is largely geared to process heavier types of crude oil. Colombia typically delivers about 225,000 barrels of oil per day to the U.S., representing about 3% of the total.

Before taking office, Trump, who reconfigured the North American Free Trade Agreement during his first term as president, vowed to impose 25% tariffs on all goods imported from Canada and Mexico, the No. 1 and No. 2 crude oil exporters to the U.S., respectively.

Both Mexico and Canada are weighing their own responses, with Mexican President Claudia Sheinbaum saying both that she's calling Trump's bluff and that her government would respond with tariffs of its own.

Disputes over the appropriate response from Canada, meanwhile, resulted in the resignation of top Labor Party leaders Deputy Prime Minister Chrystia Freeland and Prime Minister Justin Trudeau. The Bank of Canada on Wednesday cut its benchmark rate by 25 basis points to 3%, but added the tariff threat was a "major source of uncertainty" for the Canadian economy.

"Specialization and trade between countries can increase incomes and provide consumers with a greater selection of goods and services at lower prices," the bank explained. "The introduction of tariffs distorts trade patterns, reducing these benefits."

On Tuesday, White House press secretary Karoline Leavitt in her debut conference said the Trump administration was nevertheless committed to imposing sweeping tariffs starting February 1.

"February 1 is still on the books," she told reporters.

When asked by reporters about the impact on energy, Trump said the U.S. doesn't need foreign oil, given that domestic production is record-setting on the global stage at around 13 million barrels per day.

Of the crude oil grades of note, only Mars from the Gulf of Mexico has an assay comparable to the heavy, sour crudes found in Canada, Colombia or Mexico. The Gulf of Mexico accounts for about 10% of total U.S. crude oil production, or about 30% of what Canada exports to the U.S. each day.

Members of the Organization of the Petroleum Exporting Countries (OPEC) plan to meet next week to consider their agenda of sidelining production in a tacit reaction to lackluster demand. Trump is pressing the group to lower oil prices, while advocating for more upstream activity at home.

Patrick DeHaan, the lead petroleum analyst at GasBuddy, said he expects the U.S. consumer may face a spike in gasoline prices of as high as 40 cents per gallon as a result of Trump's tariffs.

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