Although oil markets saw a boost at the beginning of the week, one asset manager predicted that prices would soon “beeline south” due to fears that President Donald Trump’s planned implementation of reciprocal tariffs would negatively impact energy consumption.
Even while Trump is referring to April 2 as “Liberation Day,” oil bulls may view it more as “correction day,” according to Stephen Innes, managing partner at SPI Asset Management. “If sentiment surveys prove self-fulfilling and the hard U.S. data rolls over, crude could make a beeline south before you can say ‘demand destruction,'” Innes stated.
“Crude may head south before you can say “demand destruction” if sentiment polls turn out to be self-fulfilling and the hard U.S. data turns over.” SPI Asset Management’s managing partner, Stephen Innes
Oil prices may be poised for a significant price decline after reaching their highest levels in a month last week due to concerns over global supply. Wednesday could be the first day of this decline as some investors wager that tariffs will negatively impact the economy and, consequently, energy demand.
The current surge in crude oil prices “hasn’t been driven by booming fundamentals,” Innes told BourseWatch. At this point, “it’s geopolitical noise pricing in worst-case outcomes.”
The U.S. benchmark West Texas Intermediate crude for May delivery (CL.1) (CLK25) rose $2.12, or 3.1%, to settle at $71.48 a barrel on the New York Mercantile Exchange on Monday, as oil prices continued to rise. On ICE Futures Europe, the May contract for global benchmark Brent oil (BRNK25), which ended the trading session, added $1.11, or 1.5%, to $74.74 per barrel. With a settlement price of $74.77, the most active June contract (BRN00) (BRNM25) increased by $2.01 or 2.8%.
“A “combination of geopolitical intrigue and policy uncertainty” set the stage for a wild ride, Innes had warned earlier this year, “where every fresh headline may send prices plunging or flying in a spectacular tug-of-war.”
In fact, over the first three months of the year, the oil market has gone through that dynamic.
According to Dow Jones Market Data, WTI prices based on the front month closed the quarter down 0.3% but up 2.5% for the month. Although Brent crude saw a 0.1% increase in the first quarter, it was up 2.1% for the month.
However, according to Innes, the oil supply-side narrative does provide some rationale for price strength.
“Trump’s tariff cannon is now pointed squarely at energy importers from adversarial zip codes,” he stated. The Trump administration said last week that all items imported into the United States will be subject to a 25% levy on or after April 2 for nations that buy oil from Venezuela.
Although Venezuela’s barrels don’t affect global supply, the headline danger is enough to put hedgers and [commodity trading advisors] on edge this week. Who will be the next is the true question. Innes stated. “An already volatile market will only get tighter if that crude is eliminated, either through backchannel rerouting or sanctions bites.
“Stack Venezuela pressure on top of Iran’s restrictions and Canada’s headaches, and it’s a classic supply squeeze without needing a demand boom to ignite the rally,” he stated.
According to Innes, “let’s not pretend they’ll open the spigots without a serious price incentive,” even though OPEC+—which is made up of the Organization of the Petroleum Exporting Countries and its allies—may intervene.
Starting Tuesday, the group of major oil producers intends to proceed with the gradual unwinding of their voluntary output cuts.
See also: OPEC+ is increasing production in April. What that might signify for oil prices is as follows.
In the meanwhile, Innes stated that US shale output should not be relied upon by oil-market speculators to “save the day” because this “isn’t the Wild West anymore.” He added that discipline goes beyond drilling and that exploration and production firms are “laser-focused on capital returns, not crude patriotism.”
According to Innes, the wider market has already “started to pivot to second-order effects” from tariffs, including a cautious consumer base, slower corporate capital expenditures, and margin compression.
The “real kicker,” he claimed, is the cautious customer. “Oil won’t remain to inquire if sentiment continues to deteriorate because it will finally manifest in demand. Ask later; it’ll dump first.
