What's Affecting Oil Prices This Week? (Feb. 3, 2025)

The price of Brent crude ended the week at $76. 48 after closing the previous week at $77.46. The price of WTI ended the week at $73.68 after closing the previous week at $74.58. The price of DME Oman crude ended the week at $77.89. With last week’s decrease in prices, oil prices remain below their 200-day moving average. In our note issued at the beginning of last week, we expressed the view that the price of Brent crude oil could threaten $75.00 and while the price of Brent crude did not drop to that level, it did reach $75.61 on Jan. 29.

Last week, Russia reported that its oil and condensate production for 2024 was 10.32 MMbbl/d, which is 2.8% lower than in 2023. The lower oil production is to align with Russia’s agreement with OPEC+ to reduce production. Additionally, the deputy prime minister of Russia voiced support for the OPEC+ agreement, emphasizing the benefits for the Russian economy stemming from higher oil prices. Despite the reduced oil volumes, Russia’s oil and gas revenue increased by 26% in comparison to 2023. The higher revenue was the result of higher prices for Russian crude oil and a 7.6% increase in natural gas production, which was supported by increased exports of LNG.

Russia’s enthusiasm for OPEC+ is another reason why we do not expect Trump’s statements at the World Economic Forum to have much influence on the strategy of the members of OPEC+. Instead, we expect that OPEC+ will remain cautious with increasing supply while assessing the strength of oil demand growth and the impact of the energy policies of the Trump administration. OPEC+ will need to balance these factors with the need to maintain cooperation between their members—including with those members pushing for more production—notably UAE and Iraq.  That said, if Trump is successful in reducing the production of sanctioned producers, Iran and Venezuela, the spare capacity of OPEC+ members (around 5.90 MMbbl/d) would be available to make up for the lost production. As we have stated before, we think there is a much higher probability of the Trump administration being able to affect Venezuela’s production than Iran’s production.

The recently announced tariffs by President Trump on Canada, including 10% on Canadian crude exports, add a wrinkle. The U.S. is the major destination for Canadian crude exports (more than 90% of Canada’s total crude oil exports), with the U.S. importing around 4 MMbbl/d from Canada, which represents around 60% of U.S. total crude imports. (The U.S. also exports around 4 MMbbl/d, so on a net basis, the US imports about 2.5 MMbbl/d). A significant portion of crude oil imports from Canada goes to the Midwest (PADD 2) at about 2.7 MMbbl/d. Another 500,000 bbl/d goes to the Gulf Coast (PADD 3), around 250,00 bbl/d goes to the Rocky Mountain region (PADD 4) and another 150,000 bbl/d goes to the East Coast (PADD 1).

Last year, Canada completed a new pipeline to move crude oil to the West Coast—the TMX pipeline with a capacity of 590,000 bbl/d—and to complement the Trans Mountain pipeline with a capacity of 300,000 bbl/d. Since July of 2024, the West Coast has averaged 444,000 bbl/d of crude imports from Canada, which is an increase from 308,00 bbl/d during the first half of 2024. While the U.S. is dependent on crude oil from Canada, it is also true that Canada is dependent on the U.S. as a market for its crude exports. Logistically, Canada has, in practical terms, nowhere else to go with its crude oil exports. Additionally, since a substantial portion of Canadian crude oil is heavy (around API gravity of 21), there are only a selected number of refineries with the capabilities to process Canadian crude outside of the U.S. Because of quality attributes and logistical challenges, Canadian heavy crude is priced at a significant discount in comparison to U.S. crude oil (Western Canadian Select is priced at about $14.50 less than West Texas Intermediate). With consideration of these factors, while the tariffs will add some friction, we do not think that the tariffs will have any material impact on Canadian oil production or exports to the U.S. While it is true that U.S. refiners would have trouble finding replacement barrels for heavy Canadian crude oil, Canada will have even more difficulty in finding an outlet for its crude oil to replace the U.S. market.

Also, after the announcement of the tariffs the Canadian dollar weakened to 0.6799 with respect to the U.S. dollar, which is the lowest since the early 2000s.  Because crude oil is priced in U.S. dollars, from the perspective of Canadian producers, a weaker Canadian dollar will help offset any reduction in the price of Canadian oil stemming from the tariffs.

For the upcoming week, we think the price of Brent crude could move upwards and test $78.00.

For a complete forecast of crude oil and refined products and other energy-related fundamentals and prices, please refer to our Short-term Outlook.

About the Author: John E. Paise, president of Stratas Advisors, is responsible for managing the research and consulting business worldwide. Prior to joining Stratas Advisors, Paisie was a partner with PFC Energy, a strategic consultancy based in Washington, D.C., where he led a global practice focused on helping clients (including IOCs, NOC, independent oil companies and governments) to understand the future market environment and competitive landscape, set an appropriate strategic direction and implement strategic initiatives. He worked more than eight years with IBM Consulting (formerly PriceWaterhouseCoopers, PwC Consulting) as an associate partner in the strategic change practice focused on the energy sector while residing in Houston, Singapore, Beijing and London.