All markets crave consistency, much as economies of the world do. Ask the world's general populace what they largely require, and given time to consider, is an economy that charts left to right and mildly wanders to the upside. Boom and bust policies are felt by the tax paying civilians who have to endure the fallout from excessive monetary easing or the bouts of austerity to remedy them. As bad as that is all to contend with, it normally is a binary set of woe. However, instead of an economic world based around a pivot, the introduction of the Trump phenomenon means it is now based on a gimbal. Economic stalwarts and trusted reaction within them are upended, just take a look at US treasuries. Lower taxes and higher spending about to be seen with new 'big, beautiful bill' must first pass the Senate, but if so agreed, future repercussions are hard to envisage, so says Moody’s.

Change the language to the above observation and instead of economy replace it with geopolitics and the same gimbal applies. Humans crave identity and comparison and are at ease with dropping different nations into the role of either the good guys or the bad guys. But again, alliances and enmity have been upending with the diplomatic hand grenade that is Donald Trump. Can anyone really be sure who the US now regards as friend or foe or indeed what the endgame is for American foreign policy? From declaring he would end the Ukraine war on day one of his presidency to now calling President Putin “crazy”, and having no particular fondness for Volodymyr Zelensky, Trump is adopting all the hallmarks of someone about to leave an arena of misery that he so underestimated in both complexity and Russia’s long history of diplomatic gaming.

There has been a growing opinion, shared somewhat here, that the tariff tribulations were really aimed at China, but while the US was at it, why not do a little housekeeping with its other trading partners? And there it is, any type of relaxation into a pattern of thought lends itself to consistency, the very thing that eludes this current White House. Therefore, we should be surprised, that we are surprised on the shock announcement at the end of last week of a 50% tariff on imports into the United States from the European Union beginning June 1. The Donald has given scant regard to niceties when dealing with the Old Continent and barely conceals his disdain for its Union. The 27-member state is notoriously slow in achieving consensus and while not saying so publicly, looked at the UK's agreement to the tariff demands, rightly, as sycophantic. One wonders in the future those that were holding out for a status quo of trade between the continents might just regret not being as obsequious as the UK.

The negative reaction in markets to the new EU agitation is the sponsor of why Trump has now given a moratorium until July for Europe to offer a tariff plan. It is doubtful whether there has ever been a US President more attuned to the state of stock markets and how to pull on its sentimental strings than Donald Trump. He will be fully aware that US investors and international trend followers are still fixated on stock markets despite the flux and concern within bonds and treasuries. According to the WSJ, Investors have ploughed a record $437 billion into U.S. ETFs so far this year, and although some of it can be explained away by money migration out of mutual funds, there is still US exceptionalism on how selloffs are still considered buying opportunities. Equities and exchange rates then are in the process of reversing the EU tariff news influence and await the next Hail Mary tester from the White House.

The flip, or is it the flop, is even worse for oil

Oil market considerations remain at the back of the investor bus and are nowhere near the steering wheel of influence in the greater market puzzle. Like exaggerated leaning from children on the back bench, our fraternity has to amuse itself when Brent steers either way of $65/barrel or WTI at $60. Because oil is in play in terms of geopolitical wranglings, be they from tariffs or wars, our market is subject to every piece of news and such sensitivity makes it less attractive to outside monies. One might be bullish on how Iranian nuclear negotiations start to stutter only to be foiled by another tariff which can only lead to bearish thoughts on demand suppression. All the five major futures contracts of WTI, Brent, Heating Oil, RBOB and Gasoil last week had decent enough ranges with some being ‘outside’ (a higher high and lower low than the previous week), but all finished within 1-1.5% of the previous week’s settlement.

Donald J. Trump might consider himself a champion of oil but would get short shrift from those that rely on petroleum income. Charging around the globe urging producers to pump at will, while incentivising tariff and war negotiations with promises, in the case of Russia and Iran, of unfettered access to world markets comes with effect. Faced with such an outcome and with the prospect of ‘drill, baby drill’, OPEC+ has now enjoyed more unity than it has done for an age. What might have started as being a lesson to the cheaters of Iran, Russia and Kazakhstan looks now to be a full-blown fight for market share. Our opinion remains on how incremental production cut abandonment will be first leaked and then ratified at any following JMMC. The announcement that a meeting, according to Reuters, between eight of the OPEC+ members will happen a day earlier this Saturday can only be a rubber stamping of another round of 411kbpd return of shuttered oil starting in July, well on its way to total abandonment by October.

A US oil industry, so full of expectation after a Trump election victory, is now lamenting an oil price not seen since the gloomy days of April 2021 and COVID. M1 WTI in April fell $13/barrel or 18% and by the look of Baker Hughes data, drillers are taking a defensive attitude. Oil rigs last week reduced by 8 to 465 but compared with one year ago the total is down by 32 and is the lowest count since November 2021. With the cost of vital components such as steel ramped up by tariffs and an uncertain future for investment in oil discovery, there seems little option. For the moment, the vagaries spewing from the White House, and the byword of ‘uncertainty’ upon the lips of every market, oil producers along with us see no reason why oil prices will not be prone to a further grind lower.

Overnight Pricing