Oil Pares Losses on Speculation of Tighter Iran Sanctions
West Texas Intermediate (WTI) crude prices steadied near $73 per barrel, recovering from earlier losses of up to 3.4%. The fluctuations stem from speculation that US President Donald Trump will impose more stringent sanctions on Iran, potentially disrupting the nation's oil exports.
Potential Impact of Sanctions
Over the past four years, relaxed US enforcement and Iran's evasion tactics have enabled significant growth in Iran's oil exports, roughly 1 million barrels per day (mbpd). Reimposed sanctions could potentially slash exports by two-thirds, costing Iran approximately $30 billion annually.
Trade War Concerns
Oil prices have remained relatively unchanged year-to-date amid concerns over a potential trade war between the US and China. China has announced retaliatory tariffs on US goods, including crude oil, in response to Washington's unilateral tariffs.
China's Response
China's retaliatory measures have impacted US crude exports to China, which averaged around 250,000 bpd last year. A broader trade dispute between the world's two largest economies could adversely affect global consumption.
Trump's Policy Reversals
Trump's agreement to delay planned tariffs on Canada and Mexico has provided some relief. However, the flare-up in tensions with China coincides with the Lunar New Year holidays in Chinese markets.
Market Volatility
Crude futures have experienced volatility in recent weeks, initially rising due to cold weather and US sanctions on Russia. However, prices retreated after Trump's inauguration and threats of global tariffs.
Demand Concerns
Concerns about demand remain, particularly with China's manufacturing activity unexpectedly declining for the second month in January.