Crude oil turns lower as Mexican tariffs delayed

In the last hour or so, markets have staged a big sigh of relief, with US indices bouncing sharply off their earlier lows, the US dollar weakening and Bitcoin turning positive on the day. This came after Trump confirmed earlier comments from Mexican President Sheinbaum that tariffs on Mexico will be delayed by a month after the central American nation said it will deploy 10,000 national guards immediately to the border to avoid trafficking of drugs to the US. Crude oil prices, meanwhile, have drifted lower after surging higher at the Asian open overnight. Even if Trump hadn’t delayed Mexican tariffs, when considering both supply and demand factors, the overall impact on crude oil prices may well be limited. In any event, oil prices extended their mild losses after the OPEC+ agreed to stick to its policy and raise output gradually from April. Against a backdrop of rising OPEC+ supply and the potential for increased non-OPEC supply growth, mainly in the US, the crude oil forecast remains modestly bearish.

OPEC+ agreed to stick to its policy of gradually raising oil output from April

Today, the OPEC+ decided the correct approach would be to start raising output from April, as indicated previously. This comes after Trump called on the OPEC to help bring down oil prices. The group discussed Trump's call to raise production and agreed to start boosting output from April 1 in line with previous plans. With Trump also promising that the US will pump more oil, we could see a situation where the market may be over-supplied in the months ahead. This may well keep a lid on any potential short-term gains.

Tariffs rattled markets earlier

Meanwhile, the new tariffs on Canada are scheduled to take effect on 4th February, unless a deal is to be found in a call between the US and Canadian presidents, scheduled for later. As well as a 25% duty on most goods imported from Canada, there is also a 10% tariff on energy imports from the North American nation. Given the close integration of North America’s oil market, there is a risk that US consumers could see higher gasoline prices as refiners brace for increased costs.

The full ramifications of Trump’s new energy tariffs remain uncertain. According to Goldman Sachs, the impact on oil prices is expected to be minimal. The bank projects that Canadian oil producers will bear the brunt, with an estimated discount of $3 to $4 per barrel due to limited export alternatives. Meanwhile, US consumers are likely to see refined product costs rise by around $2 to $3 per barrel. Nevertheless, Goldman predicts that Canada’s seaborne oil exports will simply be redirected elsewhere, while the US compensates with crude imports from OPEC, Latin America, and refined products from Europe.

As a result, despite these new trade barriers, Goldman Sachs has left its oil price forecasts for 2025 and 2026 unchanged, citing stable global production and demand. The bank also highlighted that the Canadian oil tariff has largely been factored into the market.

Crude Oil Technical Outlook and Trade Considerations

Source: TradingView.com

From a technical standpoint, the broader trend in crude oil prices remains modestly bearish. The WTI chart has shown a consistent pattern of lower highs since September 2023. A trend line drawn from these peaks briefly broke in the third week of January, only for WTI to encounter strong resistance at just below $80, leading prices back below the trend line in the fourth week of January. With the bearish trend now reaffirmed and prices breaking below the 200-day moving average once again, the path of least resistance appears to be downward.

Key resistance levels to monitor include the $75.00 mark, which holds psychological significance and previously acted as both support and resistance. This level also sits just above the 200-day average. Beyond this, the bearish trend line currently aligns around the $76.0 area, with a further resistance zone at $77.00.

On the downside, there are a few short-term support levels to watch. The first is $72.50 (a former resistance-turned-support level), followed by the psychologically significant $70.00 handle, which could also offer support.

At present, the technical outlook for oil remains bearish. However, as recent developments have shown, any shifts in trade policy or comments from Trump could quickly drive fresh volatility in oil markets.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

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