Oil prices rise as dollar dips, but Iraq’s supply surge poses risk

Oil prices saw a slight increase on Wednesday, primarily supported by a weaker US dollar, which makes the commodity less expensive for buyers using other currencies. 

However, the upward movement of oil prices was limited by growing concerns about a potential economic slowdown in the United States. 

Additionally, worries about the impact of tariffs on global economic growth further contributed to capping the gains in oil prices. 

The interplay of these factors created a somewhat volatile and uncertain environment for oil markets, with traders closely monitoring economic indicators and trade developments for further cues.

“Even so, ICE Brent continues to trade below US$70/bbl and prices will likely remain sensitive to external developments,” analysts at ING Group, said in a note. 

At the time of writing, the price of West Texas Intermediate crude oil on the New York Mercantile Exchange was at $67.32 per barrel, up 1.6%.

Brent crude oil on the Intercontinental Exchange was at $70.51 per barrel, also up 1.4% from the previous close.

ING analysts said:

The oil market seems to be largely ignoring Ukraine agreeing to a US-brokered ceasefire. There is still uncertainty over where Russia stands on the proposed agreement.

EIA estimates

The US Energy Information Administration (EIA) has released its latest Short-Term Energy Outlook, and the report indicated that previously anticipated surpluses in the oil market for 2025 and 2026 have been revised downward. 

This adjustment is attributed to the impact of sanctions, which have presumably affected production or trade, thereby tightening the market and reducing the expected excess supply. 

The EIA’s assessment suggests that the sanctions have had a more significant impact on market dynamics than initially anticipated, leading to a less pronounced surplus in the coming years.

The EIA has revised its global market forecast for 2025, now anticipating a surplus of 100,000 barrels per day, a significant decrease from the previously projected surplus of 500,000 barrels a day.

In 2026, the EIA cut its surplus forecast from 1 million barrels a day to 500,000 barrels per day.

Despite the recent decline in WTI crude prices, US crude oil production estimates for 2025 and 2026 were slightly increased.

Trump’s tariffs

President Trump’s protectionist policies have caused global markets to react. 

He has imposed tariffs on major oil suppliers Canada and Mexico and increased duties on China.

These actions have resulted in retaliatory measures from the affected countries.

Over the weekend, Trump acknowledged the possibility of a “period of transition” for the United States economy. 

He expressed concerns about the potential for a recession but did not definitively state that one was imminent. 

His remarks came amidst ongoing trade tensions with China and other countries, as well as concerns about slowing global economic growth. 

The President’s comments sparked further debate about the health of the US economy and the potential impact of his administration’s policies. 

This could also be bearish for crude oil demand as the US is the top consumer of the fuel. 

More oil from Iraq

The oil market could also see additional supply from Iraq. Discussions around the imminent resumption of oil flow through a pipeline in Northern Iraq have been ongoing for several weeks.

The pipeline links the Mediterranean port of Ceyhan in Turkey to the oil fields located near Kirkuk in the semi-autonomous Kurdish region of Iraq.

The arbitration court’s ruling led to a disagreement over marketing rights, resulting in the pipeline’s closure for nearly two years.

Although it was announced previously that an agreement had been reached, this is not the case.

The pipeline will initially pump approximately 185,000 barrels per day, about half of its total capacity, according to Commerzbank AG.

“However, Iraq is also bound by the OPEC+ cut agreement, which limits the scope for expanding the oil supply,” Cartsen Fritsch, commodity analyst at Commerzbank, said. 

Iraq’s daily oil production can only increase by 12,000 to 13,000 barrels per month starting in April. 

Otherwise, production would have to be cut elsewhere if Iraq does not want to produce more oil than permitted, as it did for some time last year.

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