Oil prices climbed about 1% to a five-week high on Monday on worries supplies could decline if U.S. President Donald Trump follows through on threats to impose more tariffs on buyers of Russian oil due to a lack of progress in ending the Ukraine war.
The market also worried global oil supplies could take a hit if Trump follows through on threats to take military action against Iran if Tehran does not agree to a deal over its nuclear program.
Brent futures rose $1.04, or 1.4%, to $74.67 a barrel at 10:50 a.m. EDT (1450 GMT), while U.S. West Texas Intermediate crude rose $1.69, or 2.4%, to $71.05.
That put Brent on track for its highest close since February 24 and WTI on track for its highest close since February 25.
“(Trump’s) threat on secondary tariffs on Russia and Iranian oil is a factor oil market participants are tracking, although he has indicated he is not planning to introduce them for now,” said UBS analyst Giovanni Staunovo. “But, there is a rising risk of larger supply risks down the road.”
Oil slips on recession fears
Trump said on Sunday he was “pissed off” at Russian President Vladimir Putin and will impose 25%-50% secondary tariffs on buyers of Russian oil if he feels Moscow is hindering Trump’s efforts to end the war in Ukraine.
The Kremlin said on Monday that Russia and the U.S. were working on ideas for a possible peace settlement in Ukraine.
China and India are major buyers of Russian crude and their acquiescence would be crucial to making any secondary sanctions package seriously hurt exports from the world’s second-largest oil exporter.
Trump also threatened Iran on Sunday with bombing and secondary tariffs if Tehran did not come to an agreement with Washington over its nuclear program.
Iran’s Supreme Leader Ayatollah Ali Khamenei said on Monday the U.S. would receive a strong blow if it acts on Trump’s threat.
Some analysts believe that Trump may not act on his threats, a view that is putting a cap on oil prices.
IG analyst Tony Sycamore said the market felt Trump would not follow through. If enacted, he said, the tariffs would be another step toward a trade war that would weigh on global growth and demand for crude oil.
On Monday, several Chinese traders were unfazed by the latest threat. Three who spoke with Reuters all said Trump’s constant brinkmanship meant they discounted what he said.
“We expect WTI to stay in a range of $65 to $75 for now as the market assesses the impact of Trump tariffs on oil supply and global economy, as well as the supply situation from the U.S. and OPEC+,” said Yuki Takashima, an economist at Nomura Securities.
Elsewhere, talks to restart Kurdish oil exports through the Iraq-Turkey pipeline have hit a snag as a lack of clarity over payments and contracts persists, two sources with direct knowledge of the matter told Reuters.
In another move that could limit world oil supplies, U.S. authorities notified Spanish oil company Repsol that its license to export oil from Venezuela is to be revoked.
Signs of rising demand
In China, the world’s second-biggest economy, manufacturing activity expanded at the fastest pace in a year in March, a factory survey showed on Monday, with new orders boosting production, giving the economy some reprieve as it deals with an intensifying U.S. trade war.
In Germany, the biggest economy in Europe, inflation fell more than expected in March, bolstering the case for policymakers seeking further interest rate cuts at the European Central Bank.
Lower interest rates reduce consumer borrowing costs, which can spur economic growth and demand for oil.
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