All one needs to do when assessing the current state of the oil market is to look at assorted spreads. The structures of international crude oil benchmarks are strengthening and the backwardation in Heating Oil is also solid. They imply genuine physical tightness, and derivative traders are not afraid to react, notwithstanding the rather comfortable medium-term oil balance. The cold spell in the US and Europe could disrupt supply if refiners are affected and demand for heating oil is naturally rising. Stock draws in distillates in the coming weeks cannot be ruled out. Sanction-related declines in Iranian and Russian crude oil exports force China to seek suitable alternatives. It supports Brent. Our North Sea desk estimates dated Brent pricing at 86 cents/bbl above the March forward contract for next week. Additionally, and as Energy Intelligence points out, severely depleted crude oil stocks at Cushing, Oklahoma support WTI and make US crude oil exports to Europe uneconomic.

At the same time, concerns about the revival of inflationary pressure in the US and Europe have not subsided although a sense of calm was instilled in the bond markets yesterday. Yet, the dollar index is more than resilient and is poised to challenge the 2-year high reached on January 2. US nonfarm payrolls today, the updated monthly oil balance reports with the first glimpse into 2026 next week and the unleashing of Trump 2.0 after the US presidential inauguration the week after will likely ruffle investors’ feathers, leading to a jump in volatility. There will be a lot to ponder and evaluate but for now, temporary factors favour those with a bullish propensity.

It's More Like Yalta, not Helsinki

It is literally impossible not to write about the policies announced by the new Trump administration. Its impact on geopolitics and the global economy is there for all to see as reflected in volatile and nervous trading conditions in assorted asset classes. Before reviewing the latest developments, it is worth noting that its foreign policy approach is broadly aligned with its major adversaries. It resonates with the 1945 Yalta Conference but not the 1975 Helsinki Accord. Towards the end of the Second World War, the Allied leaders negotiated the post-war world with the Soviet despot, Stalin with no say in the matter from the smaller nations involved. The US and Britain agreed that Eastern European countries bordering the Soviet Union should be ‘friendly’ to the communist regime – and the rest is history. The declared aim of the Helsinki Final Act, signed 30 years later by 35 nations, was to reduce tension between the East and West as it emphasized the importance of human rights, fundamental freedom and the independence of sovereign states – focusing on the mantra of ‘nothing about us without us’. Basically, it laid down the foundation for the demise of communism.

The sanctity of sovereignty was not questioned during the post-1990 period. This welcome status quo started to change at the dawn of the new millennium with the decline of the US political and economic dominance on the world stage and the rise of China. The level of acrimony between rivals and smaller nations, whether foes or allies, started to increase and ‘the politics by force’ of global powers has become an accepted modus operandi. Just think of China’s stance towards Taiwan, Russia’s brazen annexation of Crimea in 2014 and the subsequent invasion of Ukraine 3 years ago. The announced foreign policies of the Trump administration fall into the same category.
The MAGA movement emphasizes that the US’s status as the leader of the free world can be achieved by ensuring national and economic security. Time will tell and it will be open for debate for a long time to come whether these objectives will be achieved via co-operation or coercion. The recent belligerent rhetoric of Mr Trump towards former allies suggests that the US would not shy away from using force to achieve its ultimate objectives. In this week’s press conference Donald Trump, answering a question, refused to rule out using military or economic force in his alleged efforts to acquire the mineral-rich Greenland and retake control of the Panama Canal. He floated the idea of buying the world’s biggest non-continental island during his first term and coined it as a ‘large real estate deal’. Fast forward 5 years and the focus has now shifted to national security as the need to deter Chinese and Russian ships from the Arctic gains significance.

The planned territorial expansion does not stop at Greenland. Mr Trump also said that retaking the Panama Canal will increase US geopolitical security since it is ‘operated by China’ and therefore controlling it ‘is vital to our country’. The icing on the cake was the suggestion to rename the Gulf of Mexico to the Gulf of America. The US, in fact, maintained control of the canal until 1977 when it was handed back to Panama and it is now managed by a Hong Kong-based company.

And then there are the US neighbours, Mexico and Canada, admittedly the country’s most important trading partners. Mr Trump threatened to impose severe tariffs on his country’s northern neighbour unless Canada increases security on its shared border. He would not rule out making Canada part of the US although it would be using economic and not military force. As for his southern neighbour, the threat of a 25% tariff on Mexican goods is aimed at substantially reducing migrant and fentanyl crossing into the US.

It is anything but clear whether the current narrative of invading countries and making them part of the US is a tangible threat or simply a negotiating tactic. What is, however, obvious is that it does nothing to maintain, let alone improve the relationship between the US and its current and former political and trading partners. If these threats become real, whatever retaliatory measures are available, they will be used with all their negative economic consequences, including oil, much to the joy of China and Russia.

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