Oil prices fall as economic fears override bullish signals

Oil, fundamental analysis

Crude prices are lower this week as the Trump administration’s tariff plans are front-and-center on the minds of traders. The talk has created a negative global economic outlook with concerns about trade wars and any such development would reduce energy demand.

The drop in prices came despite the likelihood that OPEC+ will again delay its output increase, Chevron has to stop buying Venezuelan crude, and last week saw a draw in oil stocks. A large gain in distillate inventories also added some level of bearish sentiment as did a stronger USD.

US equities markets also took a tumble this week on lower consumer confidence. WTI saw a High of $72.80/bbl on Monday while the Low was Tuesday’s $68.35. Brent hit a High of $75.25 on Tuesday and a Low of $72.40 on Wednesday. Both grades settled lower week-on-week. The WTI/Brent spread has tightened to -$3.10, a loss of -$1.00/bbl in one week. 

Pres. Trump has confirmed that he will implement tariffs on Canadian and Mexican goods effective Mar. 4 while also increasing the tariffs on Chinese imports by +10%. The US receives about 4.0 million b/d from Canada and 400,000 b/d from Mexico.

He also revoked the license for Chevron to continue to purchase oil from Venezuela. That country’s heavy oil is used to blend the US light shale oil into an acceptable feedstock for US refineries.

Meanwhile, talks between the US and Russian presidents about ending the war in Ukraine was seen as bearish for oil prices as it is assumed that sanctions against Russia would be lifted as soon as a ceasefire was initiated. However, Putin this week rejected Washington’s terms and insisted on gaining Ukraine territory it does not even currently occupy while also refusing to cede regions it annexed from Ukraine. 

Iraq’s oil minister announced that an agreement had been reached with Kurdistan to resume oil exports through Turkey which represents about 185,000 b/d of supply that has been off the market for 2 years. The added supply comes as oil demand in China has weakened according to its customs data which showed a year-on-year drop in imports of 1.9%. 

OPEC+ has now been holding 5.0 million b/d off the market for 3 years and may have to continue to push out the date to release that output given growing concerns over the global economy and subsequent oil demand. However, they have not as yet changed their position on the previously-announced increase of 180,000 b/d on Apr. 1. And, this week Brazil joined the non-OPEC members of the group. 

The Energy Information Administration’s Weekly Petroleum Status Report indicated that commercial crude oil inventories for last week decreased while the Strategic Petroleum Resesrve (SPR) remained flat at 395 million bbl. Total US oil production held at 13.5 million b/d vs. 13.3 million b/d last year at this time. The number of US rigs drilling for oil and gas increased by 1 to a total of 593 vs. 629 last year. 

Trump’s Thursday tariff declarations led to a global sell-off with that momentum spilling over into US equities. Additionally, consumer confidence sank to a near 4-year low on concerns over tariffs and continuing inflation. The Conference Board index for February fell to 98.3 from January’s 105.3 which represented the largest monthly drop since August 2021 sentiment.

All 3 major US stock indexes are lower on the week due to both the tariff implementations and consumer confidence. The USD is higher than last week which is also suppressing oil prices.  

Oil, technical analysis

NYMEX WTI Futures are below the 8-, 13-, 20- and 100-day Moving Averages. Despite the recent uptick, the downtrend is now 5 weeks old. Volume is about average at 220,000. The Relative Strength Indicator (RSI), a momentum indicator, is “slightly-oversold” at the “44” mark. Resistance is now pegged at $70.60 (8-day MA) with near-term Support at $68.40, the week’s Low.

Looking ahead

This past week has brought many variables into play. It's hard to gauge which will have the most profound impact on prices going forward. However, time and again, the economy seems to dominate the market mindset and that is currently bearish. For the first week in March, cold temperatures are restricted to the Northeast. However, during the second week of March, much warmer weather moves in and heating oil demand looks weak.    

Natural gas, fundamental analysis

Natural gas fell victim to the negative economic sentiment as well and prices dropped from their lofty heights above $4.00/MMBtu despite another large storage withdrawal for last week and another new record LNG send out. March  NYMEX Henry Hub futures expired Wednesday and April takes over as the “prompt” month now. A High of $4.15/MMBtu occurred Monday with the week’s Low  of $3.83 printing on Friday. Supply last week was -1.5 Bcfd to 110.3 Bcfd vs. 111.8 the prior week. Demand was -16.3 Bcfd to 130.8 Bcf vs. 147.1 Bcfd the week prior, with the biggest decrease coming in Residential consumption. Exports to Mexico were 6.5 Bcfd vs. 6.5 the prior week. LNG exports were 16.4 Bcfd (a new high) vs. 16.1 Bcfd the prior week. The EIA’s Weekly Natural Gas Storage Report indicated a withdrawal of -250 Bcf vs. a forecast of -250 Bcf.   Total gas in storage is now below 2.0 Tcf at 1.84 Tcf, dropping to -23.4% below last year and -11.5% below the 5-year average.

Natural gas, technical analysis

April 2025 NYMEX Henry Hub Natural Gas futures remain above the 20-day Moving Average but below the 8-day MA and right at the 13-day MA. Volume is below-average at 125,000. The RSI is heading back down to “neutral” at “57”. Support is pegged at $3.80 with Resistance at $3.85 (13-day MA). Natural gas futures are now solidly in contango through January, a pattern whereby each successive month’s price is higher than the previous one. 

Looking ahead

European natural gas prices remain strong and were most recently at $14.40/MMbtu. The UK and European continent continue to be the primary market for US LNG cargoes. As with heating oil, the next 7 days look bullish for natural gas demand in the Northeast but bearish thereafter.

Traders appear to be expecting a hot summer as the futures months from June through October are all above $4.00/MMbtu. Furthermore, winter prices are strong, rising to over $5.00 in January.