Crude oil: Sanctions threat counters tariff-driven demand worries

Key points

• From a weakening economic outlook hurting demand, crude traders have recently switched their focus to sanctions, that may reduce the overall level of output

• In the past week, the US administration has tighten sanctions on the Iranian oil trading network, while President Trump has threatened the US will enforce a 25% tariff on any nation importing Venezuelan crude

• With US sanctions back in focus, it is worth noting that Iran and Venezuela have increased their crude oil production by 1.6 million barrels per day over the past four years

• Overall, we maintain our USD 65 to USD 85 range for the year, with the near-term upside potential being limited by resistance near USD 74

Crude oil futures continue to recover from a USD 14 selloff that began in January following Trump's combative inauguration speech, which signalled an inward political focus combined with aggressive trade policies, including tariffs, that were meant to Make America (not the world) Great Again. His speech and subsequent action, including his "drill, baby, drill" focus, saw the Brent and WTI crude oil futures slump back into the USD 60s per barrel before eventually stabilising, with the focus turning from a weakening economic outlook to sanctions, potentially reducing the overall level of output despite OPEC+ plans to begin tapering production cuts from next month.

In the past week, we have seen the US administration tighten sanctions on the Iranian oil trading network, and this was followed up yesterday when President Trump declared that the US will enforce a 25% tariff on any nation importing Venezuelan crude. Although the immediate market impact might be minimal, apart from supporting additional short covering from underinvested hedge funds, this action indicates a definite change, potentially signalling the White House's willingness to sacrifice low oil prices to achieve wider strategic objectives—isolating Iran and Venezuela and increasing pressure on China.

In the latest reporting week to 18 March, managed money accounts held a 262k contract net long in the three major crude oil futures contracts, down from a 500k peak eight weeks prior, and below the five-year average of around 425k contracts.