Oil Rebounds on Short-Covering, but Tariff Risks Limit Gains
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Oil prices edged higher on Tuesday as traders covered short positions following Monday’s sharp sell-off, though macroeconomic headwinds from tariffs and U.S. monetary policy uncertainty continue to weigh on the broader outlook. Brent crude futures gained 42 cents, or 0.6%, to $66.68 per barrel, while the May WTI contract rose 45 cents, or 0.7%, to $63.53. The more actively traded June WTI contract also climbed 0.7% to $62.86.
Monday’s decline of over 2% in both benchmarks was triggered by signs of progress in U.S.–Iran nuclear negotiations, which helped ease immediate supply concerns. Talks between Washington and Tehran are advancing toward a potential framework for a renewed nuclear deal, raising the prospect of sanctions relief and higher Iranian crude exports entering the market. This development has led analysts to temper earlier expectations of constrained Iranian supply, softening the risk premium embedded in current prices.
However, the upside remains limited by broader economic concerns. The ongoing U.S. trade war and tariff escalation—especially under President Trump’s current stance—have heightened fears of a demand-side slowdown. A Reuters poll conducted on April 17 indicated a near-50% median probability of a U.S. recession within the next 12 months. As the world’s largest oil consumer, any U.S. slowdown would have significant implications for global crude demand.
Compounding these concerns, Trump has renewed his criticism of Federal Reserve Chair Jerome Powell, demanding immediate rate cuts and raising doubts about the Fed’s autonomy. This has unsettled financial markets, dragging U.S. equities lower and pushing the dollar to a three-year low. According to Nissan Securities strategist Hiroyuki Kikukawa, such political pressure risks damaging the credibility of U.S. monetary policy, which in turn could hit consumer confidence and energy consumption. Kikukawa sees WTI likely trading in the $55–$65 range for now, citing unresolved policy and economic uncertainty.
On the supply side, expectations of falling U.S. crude and gasoline inventories offer a modest bullish input. Preliminary data from a Reuters poll suggests crude stocks likely declined last week, while distillate inventories may have increased. Official data from the API and EIA are due later in the week. Meanwhile, Russia’s economy ministry has revised down its 2025 Brent crude price forecast by nearly 17%, reflecting a more cautious view on the market's medium-term balance.
Overall, oil remains trapped between short-term technical rebounds and longer-term structural headwinds. While easing tensions with Iran may relieve some supply anxiety, deteriorating U.S. macro conditions, policy instability, and trade disruptions pose growing risks to demand. Traders should closely monitor developments in U.S.–Iran negotiations, Fed policy signals, and inventory reports to navigate the next leg of price action.
Monday’s decline of over 2% in both benchmarks was triggered by signs of progress in U.S.–Iran nuclear negotiations, which helped ease immediate supply concerns. Talks between Washington and Tehran are advancing toward a potential framework for a renewed nuclear deal, raising the prospect of sanctions relief and higher Iranian crude exports entering the market. This development has led analysts to temper earlier expectations of constrained Iranian supply, softening the risk premium embedded in current prices.
However, the upside remains limited by broader economic concerns. The ongoing U.S. trade war and tariff escalation—especially under President Trump’s current stance—have heightened fears of a demand-side slowdown. A Reuters poll conducted on April 17 indicated a near-50% median probability of a U.S. recession within the next 12 months. As the world’s largest oil consumer, any U.S. slowdown would have significant implications for global crude demand.
Compounding these concerns, Trump has renewed his criticism of Federal Reserve Chair Jerome Powell, demanding immediate rate cuts and raising doubts about the Fed’s autonomy. This has unsettled financial markets, dragging U.S. equities lower and pushing the dollar to a three-year low. According to Nissan Securities strategist Hiroyuki Kikukawa, such political pressure risks damaging the credibility of U.S. monetary policy, which in turn could hit consumer confidence and energy consumption. Kikukawa sees WTI likely trading in the $55–$65 range for now, citing unresolved policy and economic uncertainty.
On the supply side, expectations of falling U.S. crude and gasoline inventories offer a modest bullish input. Preliminary data from a Reuters poll suggests crude stocks likely declined last week, while distillate inventories may have increased. Official data from the API and EIA are due later in the week. Meanwhile, Russia’s economy ministry has revised down its 2025 Brent crude price forecast by nearly 17%, reflecting a more cautious view on the market's medium-term balance.
Overall, oil remains trapped between short-term technical rebounds and longer-term structural headwinds. While easing tensions with Iran may relieve some supply anxiety, deteriorating U.S. macro conditions, policy instability, and trade disruptions pose growing risks to demand. Traders should closely monitor developments in U.S.–Iran negotiations, Fed policy signals, and inventory reports to navigate the next leg of price action.