March 31 (Reuters) – Oil prices surged nearly 2% on Monday, reaching a five-week high due to fears that supply disruptions could occur if U.S. President Donald Trump follows through on his threats to impose additional tariffs on Russia and potentially take military action against Iran.
Brent crude futures rose by $1.11, or 1.5%, to settle at $74.74 per barrel. U.S. West Texas Intermediate (WTI) crude climbed $2.12, or 3.1%, closing at $71.48 per barrel. This marked the highest closing price for Brent since February 24, and the highest for WTI since February 20. The premium of Brent over WTI dropped to $3.02 per barrel, its lowest level since July 2024.
Analysts suggest that when Brent’s premium over WTI falls below $4 per barrel, it becomes less economical for energy companies to ship U.S. crude overseas. This could lead to a decline in U.S. oil exports.
President Trump stated on Sunday that he was “pissed off” at Russian President Vladimir Putin and threatened to impose secondary tariffs of 25%-50% on buyers of Russian oil if Moscow interferes with his efforts to end the war in Ukraine.
UBS analyst Giovanni Staunovo noted that while Trump’s tariff threats on Russian and Iranian oil are closely watched by market participants, he has not yet made plans to enforce them. However, Staunovo warned of increasing risks of future supply disruptions.
The Kremlin, meanwhile, announced that Russia and the U.S. are exploring potential peace solutions for Ukraine.
China and India, two of Russia’s largest crude buyers, would be pivotal in determining the effectiveness of any secondary sanctions. Both countries’ cooperation would be crucial for sanctions to significantly impact Russian oil exports.
Trump also threatened military action and secondary tariffs against Iran on Sunday if Tehran does not agree to a nuclear deal with Washington. In response, Iran’s Supreme Leader Ayatollah Ali Khamenei warned that the U.S. would face a “strong blow” if it acted on Trump’s threats. Additionally, Iran’s Revolutionary Guards seized two foreign tankers in the Persian Gulf, accusing them of smuggling over 3 million liters of diesel fuel.
Some analysts believe that Trump may not follow through with his threats, which is limiting upward movement in oil prices. IG analyst Tony Sycamore suggested that the market assumes Trump’s rhetoric will not escalate into action. If tariffs were imposed, Sycamore warned, they could lead to a broader trade war that would negatively impact global economic growth and oil demand.
On Monday, Chinese traders appeared unfazed by Trump’s latest threats. Three traders, speaking to Reuters, dismissed his statements, noting that his frequent brinkmanship has made such threats less impactful.
Meanwhile, efforts to restart Kurdish oil exports via the Iraq-Turkey pipeline have encountered delays due to ongoing issues with payment terms and contracts, according to two sources familiar with the situation.
In another development that could tighten global oil supplies, U.S. authorities informed Spanish oil company Repsol that its license to export oil from Venezuela will be revoked. Repsol confirmed that it is in discussions with U.S. officials to find a way to continue operations in Venezuela.
In the U.S., crude oil production fell by 305,000 barrels per day in January, reaching a level of 13.15 million barrels per day—the lowest since February 2024.
Signs of Rising Demand
In China, manufacturing activity expanded at its fastest pace in a year in March, according to a factory survey released Monday. The increase in new orders boosted production, providing some relief for the economy as it faces the ongoing U.S. trade war.
In Germany, inflation fell more than expected in March, strengthening the case for further interest rate cuts by the European Central Bank. Lower interest rates can stimulate economic growth and, in turn, boost demand for oil.
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