MW Oil prices settle higher a day after sliding in DeepSeek-inspired tech rout

By Myra P. Saefong and William Watts

Natural-gas futures end at a 3-week low

Oil futures finished higher on Tuesday, recouping a portion of the selloff from a day earlier tied to the emergence of Chinese artificial-intelligence startup DeepSeek, which raised questions over the outlook for energy demand.

DeepSeek's low-cost AI model sent tech shares down sharply Monday, and raised questions about whether the further development of AI will require as much power generation as previously assumed.

Price moves

-- West Texas Intermediate crude CL00 for March delivery CL.1 CLH25 rose 60 cents, or 0.8%, to settle at $73.77 a barrel on the New York Mercantile Exchange, after losing 2% on Monday.

-- March Brent crude BRNH25, the global benchmark, added 41 cents, or 0.5%, at $77.49 a barrel on ICE Futures Europe. The more actively traded April contract BRN00 BRNJ25 gained 31 cents, or 0.4%, to settle at $76.49 a barrel.

-- February gasoline RBG25 tacked on 1.2% to $2.05 a gallon, while February heating oil HOG25 lost 0.4% to $2.45 a gallon.

-- Natural gas for February delivery NGG25 ended at $3.47 per million British thermal units, down 6.1%. The settlement was the lowest for a front-month contract since Jan. 7, according to Dow Jones Market Data.

Market drivers

Oil prices finished with a modest gain as U.S. benchmark stock indexes traded higher after Monday's tech rout. The steep fall for tech shares sparked a round of risk aversion that helped drag down crude, analysts said.

"DeepSeek unveiled a lower-cost, lower-energy-consumption AI model," said Robbie Fraser, associate director of global research and analytics at Schneider Electric. "That's raising fresh questions about expectations of surging energy demand for data centers in the years ahead, though the full impact of DeepSeek's model is still being determined."

Prices for natural gas also declined Tuesday, notching back-to-back session losses, with sentiment around the commodity bearish as "AI trends shake up the market" - raising concern that less gas may be needed to power AI data centers in the future, said Alex Hodes, director of energy-market strategy at StoneX, in a Tuesday newsletter. Milder weather also looks to affect parts of the U.S., he said, implying a potential drop in heating demand for the fuel.

Oil's pullback on Monday saw front-month WTI end the day down 8.6% and Brent down 6% from the roughly five-month highs set on Jan. 15. The retreat has come as investors weigh tariff threats and other policy measures from President Donald Trump, as well as his call last week for the Organization of the Petroleum Exporting Countries to boost production.

Commodities Corner: Trump may have given the Saudis and OPEC the excuse they needed to boost oil production

Oil had rallied in December and early January after the Biden administration imposed wider sanctions on Russia's energy industry.

Since Jan. 15, prices for the next-due Brent contract had fallen by around twice as much for the contract maturing in nine months, noted Barbara Lambrecht, commodity strategist at Commerzbank. This could indicate that tensions triggered by the tightening of sanctions are easing, or that fears of further sanctions by the new administration are diminishing.

Reduced fears of further sanctions could be an indirect response to Trump's call on OPEC to boost output, she said. "After all, he is expressing concern about the level of prices, which argues against further massive sanctions in the short term."

That said, if traders were convinced Trump's appeal to OPEC was resonating, the prices of contracts with longer maturities in particular would have dropped more sharply, Lambrecht wrote.

"After all, it is rather questionable whether Trump will find a lever to put Saudi Arabia under pressure. Incidentally, nothing has been heard from the OPEC members so far," she said. "The pressure to act has diminished anyway with yesterday's price drop."

However, Tariq Zahir, managing member at Tyche Capital Advisors, pointed out that Saudi Arabia does have the ability to increase production immediately if it wants to.

Trump has been clear about his "drill, baby, drill" mantra for U.S. oil production, and if the Saudis see more U.S. oil coming into the market, they could "appease Trump" by releasing their spare production capacity and regain market share, Zahir said.

The Energy Information Administration will issue its weekly update on domestic petroleum supplies and production Wednesday.

On average, analysts expect it to report a gain of 2.6 million barrels in U.S commercial crude inventories for the week ended Jan. 24, according to a survey conducted by S&P Global Commodity Insights. The analysts also forecast a supply increase of 1.4 million barrels for gasoline and an inventory decline of 2.4 million barrels for distillates.

-Myra P. Saefong -William Watts

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January 28, 2025 15:31 ET (20:31 GMT)

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