The oil market, which experienced a strong rally in January, faced a sharp sell-off in February as concerns over trade wars began to impact oil price expectations. The rally in January followed the Biden administration’s imposition of its most aggressive sanctions on Russia’s oil trade, disrupting the flow of cheap oil to major consumers like China and India. Both countries scrambled to find non-sanctioned vessels, traders, and insurers to continue importing Russian crude, fueling a rise in oil prices.
As oil surged, investors, including hedge funds and portfolio managers, rushed to buy crude futures and options, contributing to one of the most significant market rallies in recent months. The drop in crude oil and product inventories in developed economies also encouraged bullish bets on oil.
However, in February, the mood shifted. Growing concerns over trade tariffs under the new U.S. administration, led by President Donald Trump, led to fears of a potential trade war that could slow economic and oil demand growth. The rising tariffs sparked anxiety in the oil market, pushing prices down as traders adjusted their positions.
The decline in commercial oil inventories in the Organization for Economic Co-operation and Development (OECD) countries had been supporting oil prices, reaching their lowest point since September 2022 by the end of January 2025. The U.S. Energy Information Administration (EIA) estimated inventories would continue to drop in February and March before rising slowly in April.
Global oil stocks, including in China, also declined. The International Energy Agency (IEA) noted that concerns over new sanctions on Russia and Iran, which could disrupt oil supplies, helped push prices up in early January. However, market sentiment quickly shifted as trade war fears and their potential impact on oil demand growth took over.
By early February, the optimism that had fueled the January rally had evaporated, with oil prices losing all of their gains. As President Trump imposed tariffs and threatened further trade restrictions, speculators began to liquidate their positions. Ole Hansen, Head of Commodity Strategy at Saxo Bank, noted that the two-month buying spree was now exerting downward pressure on prices.
Hansen also highlighted that hedge funds and money managers had started increasing short positions in oil futures. He warned that there could be further price drops in the short term, driven by selling from speculators who had bought large amounts of contracts in the preceding months.
In the near future, volatility is expected to dominate the oil market. Bullish factors such as supply risks due to sanctions and falling OECD inventories will clash with bearish concerns over trade wars and the possibility of peace talks to end the war in Ukraine.
Related Topics:
- Crude Oil Reaches $72.83, Targets Higher Resistance
- Oil Price Index Live Chart Today (February 14)
- What Is the WTI Crude Oil Price Today (February 14)