Crude Oil Rallies as Dollar Weakens and U.S.-India Trade Deal Boosts Demand Outlook

Crude oil markets staged a significant recovery on Tuesday, driven by a combination of favorable currency movements and optimistic trade developments. WTI crude oil for March delivery climbed $1.10 per barrel, or 1.77%, to settle at $63.24. This rebound followed steep losses from the previous session, with multiple market factors converging to support prices.

Dollar Weakness Creates Tailwind for Energy Markets

The U.S. dollar index declined 0.17 points, or 0.17%, to 97.46, creating a favorable backdrop for crude oil trading. A weaker dollar typically makes energy commodities more attractive to international buyers, as oil priced in dollars becomes cheaper for foreign consumers. This currency dynamic has historically supported crude oil prices during periods of dollar depreciation.

Tariff Cuts and Trade Agreement Reshape Market Expectations

Early February saw a significant development when U.S. President Donald Trump and India’s Prime Minister Narendra Modi announced a comprehensive trade framework. Under the agreement, the U.S. would reduce its main tariff on Indian goods from 25% to 18%, while removing what Trump termed a “penalty tariff” imposed on India for purchasing Russian crude. This concession comes contingent on India ceasing its Russian crude imports, a commitment India appears poised to honor given recent reports of declining Russian oil purchases.

As part of the broader deal, India has agreed to purchase over $500 billion in U.S. products spanning energy, technology, agriculture, and coal sectors. Market analysts view this agreement as emblematic of a shift toward bilateral trade arrangements, with crude oil demand potentially benefiting from increased energy purchases. Experts anticipate that similar trade negotiations could follow, reinvigorating global energy demand.

Supply Concerns and Oversupply Headwinds

The trade agreement simultaneously triggered concerns about oil market oversupply. With India reducing Russian crude purchases, substantial volumes of Russian crude may seek alternative buyers globally. This dynamic creates downward pressure on prices, offsetting some of the bullish sentiment from the trade deal’s energy implications.

Geopolitical Risk Premium Sustains Market Support

Middle Eastern tensions continue to provide a floor for crude oil prices. Trump has escalated pressure on Iran through military posturing, dispatching naval forces near Iranian waters in an effort to compel nuclear negotiations. While Iran initially resisted, President Masoud Pezeshkian subsequently ordered his negotiating team to engage with U.S. officials. Despite this diplomatic opening, market observers remain skeptical of a breakthrough, maintaining the geopolitical risk premium that supports crude oil valuations.

Meanwhile, peace talks between the U.S., Russia, and Ukraine are scheduled for early February in the United Arab Emirates. However, Russia continues intensive military operations against Ukraine, creating humanitarian challenges and sustained geopolitical uncertainty.

OPEC Maintains Production Discipline

Late in the month, the OPEC alliance confirmed its decision to maintain current oil production levels through March 2026. This reaffirmation of the late 2025 output freeze signals the cartel’s acknowledgment of global oversupply concerns projected for 2026. By holding production steady, OPEC seeks to support prices amid forecasts of excess supply.

Crude oil markets thus remain caught between supportive factors—weak dollar, trade-driven demand optimism, geopolitical risk—and headwinds including oversupply concerns and potential peace negotiations that could ease geopolitical premiums. The near-term trajectory for crude oil prices will likely depend on how these competing forces balance over coming weeks.