Sector Update: Energy

Oil futures are losing ground after an industry report of a large build in U.S. crude stocks, while the prospect of a trade war fuels concerns about demand. "All of this tariff talk and general confusion that it's generating is bearish demand as companies can't expand if they don't know what their costs are or what they can sell their goods for," Scott Shelton of TP ICAP says in a note. The API reported a 5 million barrel increase in U.S. stocks for last week, analysts note. EIA data inventory are due later this morning, with a Wall Street Journal survey predicting a 1.3 million barrel build. WTI is off 1% at $71.97 a barrel and Brent is down 1.1% at $75.38 a barrel. (anthony.harrup@wsj.com)

By William Watts

Oil futures fell Wednesday, feeling pressure after industry data showed a large rise in U.S. crude inventories and as investors feared a U.S. -China trade battle will dent demand.

Price moves

• West Texas Intermediate crude CL00 for March delivery CL.1 CLH25 fell 76 cents, or 1%, to $71.94 a barrel on the New York Mercantile Exchange.
• April Brent crude BRN00 BRNJ25, the global benchmark, dropped 87 cents, or 1.1%, to $75.33 a barrel on ICE Futures Europe.

Market drivers

The American Petroleum Institute late Tuesday reported that U.S. crude inventories rose 5.03 million barrels last week, according to a source citing the data, with gasoline stocks up 5.43 million barrels, while distillates, which include diesel fuel and heating oil, dropped 6.98 million barrels.

The builds in crude and gasoline inventories are far larger than what investors are looking for when the Energy Information Administration releases its official and more closely followed data later Wednesday morning.

On average, analysts polled by S&PP Global Commodity Insights forecast the EIA to show an increase of 3.4 million barrels in domestic commercial crude inventories for the week ended Jan. 31. They also forecast a weekly inventory gain of 100,000 barrels for gasoline and a decline of 2.9 million barrels for distillates.

Oil fell sharply early Tuesday, pressured by the Trump administration's imposition of an additional 10% tariff on Chinese imports, though losses were trimmed after President Donald Trump signed an executive order to bring "maximum" economic pressure on Iran.

"Rising stockpiles and trade-related uncertainty could continue to weigh on crude, reinforcing a bearish sentiment due to persistent demand-side risks," said Joseph Dahrieh, managing principal at Tickmill, in emailed comments. "While supply constraints provide some stability, expectations of increasing production in the U.S. and from OPEC members could weigh on the market over the longer term."

-William Watts

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Steel rebar futures eased to CNY 3,260 per tonne after Chinese commodity markets reopened from the Lunar New Year celebrations, the lowest in three weeks, as the demand outlook for ferrous metal remained pinned on uncertain stimulus policies by the Chinese government.

Beijing previously announced it would widen its budget deficit and make way for aggressive stimulus packages this year, but lack of action and muted spending by local governments raised skepticism about public support for debt-ridden property developers, a key demand source for rebar.

The latest official data pointed to a sharp contraction in construction activity in the first month of the year as the construction PMI slumped to a record low of 49.3 from 53.2 in the previous month.

In the meantime, lingering concerns of a trade war pressured the outlook for Chinese steel exports.

The country, exported a record setting 9.7 million tons of steel in December, a 26% surge annually.

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Tariff Fightback Begins; How Levies Are Raising Commodity Costs By Paul Berger

Some of the U.S.'s biggest trading partners are flexing their muscles as the Trump administration escalates its trade war.

Within minutes of the U.S. imposing a 10% tariff on China, Chinese officials hit back with tariffs on U.S. coal and liquefied natural gas imports, restrictions on exports of certain metals and by opening an antitrust probe into Google.

The WSJ's Liza Lin and Raffaele Huang report that China's measures are largely symbolic because its tariffs, set for Feb. 10, target a narrow band of energy and machinery imports and its export controls don't go as far as a recent ban on critical minerals. Google has only a minimal presence in China.

The tit-for-tat exchange shows how quickly tensions are escalating. The WSJ's Alexander Ward and Alex Leary write that a hoped-for phone call Tuesday between President Trump and Chinese leader Xi Jinping didn't happen . U.S. officials say a conversation between the two leaders is expected in the next week.

European leaders have started preparing for the prospect of tariffs as well. The WSJ's Daniel Michaels and Kim Mackrael write that European Union officials are identifying imports from politically sensitive U.S. states , and French President Emmanuel Macron says Europe "must command respect and respond" to any tariffs.

The U.S. Postal Service is suspending international parcels from China and Hong Kong after the U.S. closed a loophole that allows companies to avoid duties on packages worth less than $800. Spirits maker Diageo warned U.S. trade tariffs could derail its recovery . (WSJ) The U.K. is managing to avoid U.S. tariffs , for now. (WSJ)

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Learn More Quotable Commodities

Steelmakers are offering a glimpse at how tariffs could ripple across U.S. supply chains and raise consumer prices. Some U.S. steelmakers are raising their rates even after Trump paused tariffs on Canada and Mexico. The WSJ's Bob Tita reports that pricier steel and aluminum imports could lift consumer prices for appliances, cars and canned drinks .

The U.S. steel industry is coming off its worst year since 2020 because of weak manufacturing demand. Steel executives have been pushing for measures that block what they see as unfairly low-price materials entering the country. Canada and Mexico accounted for 35% of steel imports last year. In the last few weeks, U.S. Steel announced a $50-a-ton price increase for flat-rolled steel, and Nucor raised its price by $25 a ton. Those price hikes are already hitting manufacturers who say they must now raise prices too.

Number of the Day In Other News

The Federal Reserve's Mary Daly says the central bank is in no rush to lower interest rates. (MarketWatch)

Job openings in the U.S. fell in December to the second-lowest level since the end of the pandemic. (MarketWatch)

Ferrari expects revenue and earnings to rise this year after the sports-car maker reported a strong end to 2024 . (WSJ)

Cosmetics giant Estée Lauder will cut up to 7,000 jobs and warned of a steep sales drop to start the year. (WSJ)

Nintendo cut its annual earnings projections. (WSJ)

Truck engine maker Cummins swung to a fourth-quarter profit of $418 million from a loss of $1.43 billion a year earlier. (Dow Jones Newswires)

An oil tanker that was attacked by Houthi militants in Yemen last year has sailed through the Red Sea unharmed. (Reuters)

The Singapore Navy is deploying a remotely controlled patrol boat to monitor local waters. (The Maritime Executive)

The chief executive of Japanese shipowner K Line, Yukikazu Myochin, is stepping down . (TradeWinds)

Almost 100,000 organic eggs valued at $40,000 were stolen from a trailer in Pennsylvania. (NBC News)

About Us

Follow the WSJ Logistics Report team: @bylizyoung and @pdberger . Follow the WSJ Logistics Report on X at @WSJLogistics .

This article is a text version of a Wall Street Journal newsletter published earlier today.

Gold futures rise, holding ground after setting a fresh record earlier in the session. Futures are up 0.6% at $2,892.70 a troy ounce, having reached $2,901.50 an ounce earlier in the day. The precious metal is gaining on a weaker U.S. dollar and growing concerns of an escalating U.S.-China trade war, and the likely hit to global economic growth prospects, ActivTrades' Ricardo Evangelista says in a note. The weaker dollar follows President Trump's last minute U-turn on imposing additional tariffs on Mexico and Canada, and disappointing U.S. labor and industrial data, Evangelista writes. At the same time, U.S. tariffs on China--and Beijing's response--are ominous for the global economy, increasing gold's safe-haven appeal. Demand is reinforced by further Middle East uncertainty, after Trump's comments about taking over Gaza and displacing the Palestinian population, Evangelista adds. (joseph.hoppe@wsj.com)