Market Analysis

Oil Climbs as Investors Cover Shorts, While Tariff Fears Weigh on Outlook

Mellissa · 22 Apr17.6K Views

Image Credit: Reuters

Oil prices rose in early Tuesday trading as investors took advantage of the previous day's losses to cover short positions, although concerns about economic challenges from tariffs and U.S. monetary policy continued to weigh on fuel demand.

Brent crude futures increased by 51 cents, or 0.8%, to $66.77 a barrel at 0045 GMT, while U.S. West Texas Intermediate crude rose by 51 cents, or 0.8%, to $63.59 a barrel. Both benchmarks had fallen more than 2% on Monday following signs of progress in U.S.-Iran nuclear talks, which alleviated some supply concerns.

"Some short-covering followed Monday's sharp sell-off," said Hiroyuki Kikukawa, chief strategist at Nissan Securities Investment, a division of Nissan Securities.

"However, fears of a potential recession due to the tariff war persist," Kikukawa added, suggesting that WTI prices will likely fluctuate within the $55–$65 range as uncertainty over tariffs continues.

On Monday, U.S. President Donald Trump reiterated his criticism of Federal Reserve Chair Jerome Powell, stating that the U.S. economy could slow unless interest rates were lowered immediately. His remarks raised concerns about the Fed's independence in setting monetary policy and the outlook for U.S. assets, leading to a drop in major U.S. stock indexes and the dollar index, which fell to a three-year low.

"The growing uncertainty surrounding U.S. monetary policy is expected to negatively impact financial markets and the broader economy, fueling fears of a decline in crude oil demand," Kikukawa said.

A Reuters poll on April 17 indicated that investors expect the tariff policy to cause a significant slowdown in the U.S. economy in the coming months, with the probability of a recession within the next 12 months approaching 50%. The U.S. is the world’s largest oil consumer.

In the meantime, Russia's economy ministry has downgraded its forecast for the average price of Brent crude in 2025 by nearly 17% compared to previous estimates made in September, according to documents obtained by Reuters.

Preliminary data from a Reuters poll also showed that U.S. crude oil and gasoline stockpiles were likely to have fallen last week, while distillate inventories were expected to have risen, ahead of weekly reports from the American Petroleum Institute and the Energy Information Administration.