Although the presence of Donald Trump was still keenly felt over our market yesterday, some order was re-established. Focus shifted away from the guessing game, headline trading that shaped investor sentiment lately and genuine worries about the oil balance ensured that the move down, which started in mid-January continues after an upside correction on Tuesday. Headline EIA numbers are to blame. The 5.5 million bbls drawdown in US distillate stocks could not compensate for the 8.7 million and 2.2 million bbls increases in crude oil and gasoline inventories. The collective build pushed those with a bullish propensity towards the exit, but it must be pointed out that implied demand is holding confidently above 21 mbpd and because of the seasonal drawdown in the ’other products’ category, total US commercial stocks declined 2.7 million bbls.

The US president was uncharacteristically quiet yesterday afternoon. The tit-for-tat measures on trade with China acted as a hindrance to a convincing stock market rally, another factor behind oil’s subdued performance. The elevated growth in US private payrolls was countered by the unexpected slowdown in service sector growth and the widening of the trade deficit in December, ahead of the planned introduction of import tariffs. There is a somewhat sombre backdrop to the oil complex, also mirrored in the narrowing WTI and Brent backwardation, together with the downside pressure on Brent CFDs. Yet, the US President has dozens of rabbits in his hat, and he will be intrinsically tempted to pull out one after the other. His predecessor’s last move of imposing new sanctions on Russia led to a sizeable increase in Saudi OSP for Asian refiners in March, possibly another source of short-term price support.

Bullish Supply, Bearish Demand

It would be an understatement to characterize the first two weeks of the Trump presidency as idiosyncratic. It appears that more often than not the actions align with the campaign pledges to a certain but not to the full extent; think of deportation, tariffs, or foreign policies. Yet, press conferences and throw-away comments do not cease to shock and awe. In other words, certainty and predictability are in short supply. Consequently, investors act and react to developments with a lack of confidence and conviction as they try to make sense of whatever the administration puts forward.

It is beyond the scope of this report to speculate whether Mr Trump's and his government's modus operandi reflects his innate volatile self or is purposefully employed. What is, however, becoming noticeably clear is that the impacts of the pledged or implemented policies are consistent in effect, as the post-mortem of last week reveals.
The hectic movements in the oil and equity markets this week have been telling. When the planned sanctions on US neighbours were announced at the end of last week equity markets plummeted on Monday. Oil prices rallied since the trade restrictions also targeted oil imports from Canada and Mexico. Concessions in the 11th hour reversed the trend. As punitive measures were delayed for 30 days stocks regained the lost ground and oil plunged. It is intriguing to observe that price reporting agency S&P Global Platts estimated WTI CMA (Calendar Month Average) at $15.50/bbl over Western Canadian Select (Hardisty), one of Canada’s main export grades, on Monday. This is an improvement of $1.65/bbl from Friday’s assessment, simply because the prospects of Canadian oil export disruption increased the demand for US crude oil whilst dampening it for Canadian grades. After backtracking, the status quo was re-established and the premium WTI CMA commands over WCS (Hardisty) fell back to $13.75/bbl by Tuesday’s CoB.

As the market was mulling over Trump’s next step oil prices drifted lower, partially pressured by the 10% extra tariffs on Chinese goods and the retaliatory measures announced by China. The move lower came to an abrupt halt when the US President announced maximum pressure on Iran with the aim to drive oil exports from the Persian Gulf OPEC nation to nought. Front-month Brent sky-rocketed and gained $2.50/bbl in less than one hour.
The conclusion, which is based on developments in the last 4-5 days, is that US foreign economic policies, ie. import tariffs hurt oil prices – provided energy is spared. This observation rests on the simple axiomatic tenet that restricting international trade hampers economic growth. Naturally, the very opposite is true when oil exports are involved as it could lead to the tightening of the oil balance. US policies adversely impact both oil demand, which is registering record highs annually (with a bearish effect) and oil supply/exports, where spare capacity is flirting with 6 mbpd (with a bullish effect). At present, it is not the global oil balance that causes wide price swings, but policy announcements, which cannot be relied upon.

Once the baseline is formed the only, quite burdensome, task left is to determine which of the two will be the more dominant factor. It is impossible to foretell, especially when the rather disturbing expansive US ambitions are added to the equation. They seem to emulate the presidency of William McKinley and attempt to achieve the 21st-century version of the idea of ‘Manifest Destiny’, the God-ordained right of America to expand. Territorial claims of the Panama Canal, Canada, Greenland, and the latest perplexing and bizarre, albeit possibly premeditated suggestion of the long-term US occupation of the Gaza strip, which would literally turn the dim hope of the ‘two-state solution’ into the forcible replacement of 2 million people, will inevitably lead to a significant rise in international tension.

Elevated anxiety level between the US’s allies and foes is an impediment to social and economic wealth and thus dents oil consumption and pressures the price of oil – unless it sparks wars in oil-producing regions. In a Trumpless world, the present supply-demand snapshot insinuates adequate supply and fattening global oil stocks throughout 2025 limiting any upside price potential – unless one subscribes to OPEC’s view. In a Trumpian world, given the ambiguity of geopolitics and the global economy, price spikes will very much become the zeitgeist of 2025 and possibly beyond. Yet, protracted strength is implausible as it would weaken the President’s standing and popularity amongst the electorate, whom he pledged to put first during every single day of his administration.
 

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