Oil prices are trading positively, posting their third consecutive weekly gain, as markets brace for further tariffs from the Trump administration. Brent crude is trading near $74 per barrel, while West Texas Intermediate (WTI) crude is trading below $70. The new tariffs, which include Venezuelan crude oil, are expected to take effect on April 2, adding to the uncertainty in oil markets.
Tariffs and Their Impact on Oil Markets
Trump’s tariffs on crude oil are expected to have a significant impact on the global market. The reciprocal tariffs on Venezuelan crude oil will take effect on April 2, creating a tight supply of crude oil. According to many analysts, Venezuelan oil is a major exporter in global energy markets, making the impact of these tariffs significant.
This change comes at a sensitive time for oil markets, as oil prices have been rising since the beginning of March, supported by increased investor hedging against price increases due to sanctions and tariffs. Venezuela’s oil exports to China have seen a significant jump in recent months, adding another dimension to the expected impact of these tariffs.
Weak Market Fundamentals and the Impact of Sanctions
On the other hand, analysts said that weak demand and rising supplies are currently impacting the oil market. Although US sanctions on Venezuelan crude oil have contributed to a temporary rise in prices, concerns about the negative outlook from some global trading companies remain. Meanwhile, OPEC+ will begin increasing production next month, which had been temporarily halted, marking the beginning of a series of planned production increases.
The Impact of US Sanctions on the Global Oil Market
Trump’s order to impose tariffs on Venezuelan oil has alarmed many traders and refiners, especially in China, the largest importer of Venezuelan oil. China, which was also the largest importer of Iranian oil, is facing significant pressure due to these measures.
In this context, consultancy Rystad Energy warned that sanctions on Iran could lead to significant disruptions in global oil markets. These sanctions could raise prices unexpectedly, especially if political tensions between the United States and China over these issues persist.
OPEC+ Under Pressure in Light of US Policy
OPEC+ faces unprecedented challenges in controlling oil prices as a result of US policies. A report by Kotak Institutional Equities states that the alliance has lost its ability to effectively regulate the market due to weak global demand and increased supplies from non-member countries such as the United States. According to the report, oil prices are expected to remain lower in the near future, with forecasts lowered to around $70 per barrel in the 2026-2027 fiscal year. Since October 2022, OPEC+ has cut production by 2 million barrels per day. However, with continued pressure on oil prices due to increased non-OPEC production, the alliance faces increasing challenges in its efforts to maintain stable prices.
US Oil Production: Its Impact on the Market
US oil production has seen significant growth in recent years, significantly impacting the global oil market. The United States has become one of the world’s largest oil producers, thanks to advances in shale oil extraction techniques, which have enhanced its ability to meet global market demand. This growth in US production has contributed to reshaping supply and demand dynamics in oil markets.
Increased US Production and Its Impact on Prices
Since October 2022, US oil production has increased by about 1.5 million barrels per day, despite a decline in the number of shale oil rigs by about 25%. This production increase comes at a critical time, as oil markets face significant challenges in terms of the balance between supply and demand. This excess production contributes to a global oversupply, reducing the impact of OPEC+ production cuts.
OPEC+ is attempting to control oil prices by reducing production, but increased US production means that the impact of these measures may not be as effective as it was previously. In fact, this increased production could lead to lower prices or at least stabilizing them at lower levels. US oil producers in North America are no longer adhering to OPEC+ production cuts and are instead moving towards exploiting new opportunities in the global market.
Expectations of Future US Production Increases
The International Energy Agency (IEA) expects US oil production to continue increasing. The Americas, including Canada and Brazil, will contribute the largest share of the increase in global oil supply in 2024 and 2025. This production increase reflects a major shift in oil markets, with the United States becoming a major player in determining global prices.
The expected increase in US oil production also means that the market will be under continued pressure in the coming years. US oil companies will continue to benefit from lower production costs thanks to modern drilling technologies, allowing them to compete at high levels of output despite low prices.
US Oil and Non-OPEC+ Supply
High US oil production has reduced the need for OPEC+ interventions in price setting. As non-OPEC production continues to increase, global oil markets will become further oversupplied, putting pressure on prices in the long term.
