It has been predictable, but nonetheless curious, that the incoming US President would at some stage cross swords with the Chair of the Federal Reserve. The FOMC decision to hold rates pat saw fruition in such expectation. In a rant on ‘Truth Social’ condemning the FED to be interested in gender, green energy and climate fakery rather than bringing inflation to heel while failing in banking regulation, the scapegoat for any ills that befall President Trump’s policies is being fatted for future verbal slaughter.

Jerome Powell pointed out in his post-decision press conference that unemployment had stabilised, inflation remained “somewhat elevated” and went on to describe an uncertain economic outlook which on the face of it will result in fewer interest cuts for 2025. The clash between Orange Don and Grey Jay is a delicious prospect for satire, however, a re-engagement of hostilities between the two is an awful prospect for market stability. Powell is in situ until May 2026, and while he may not react verbally to a scathing White House occupant, there is little doubt that the FED will turn a deaf ear to political situations and its path of independence will be resolute.

Elsewhere, and in the markets, investors are still reeling over the DeepSeek challenge to AI thinking and with Tesla, Meta and Facebook posting mixed results and forward predictions of expenditure, the path back to mega-cap Nirvana will have to wait on how Apple, Alphabet/Google, Amazon and Nvidia present themselves. Crude oil prices felt the pressure of fewer runs from US refiners during the recent cold snap as EIA Crude inventories rose by 3.5mb enabling a turn of fortune in Cushing stocks showing an increase of 0.32mb to 21mb and taking it away from a threatened ‘bottoming’. However, all oil considerations are in the shadow of what tariffs might be announced on Canada and Mexico. The US’s biggest import partners, and oil considerations are mesmerised by what will come after February 1 when any trade restrictions are promised to be unveiled. Indeed, Bank of Canada’s Governor, Tiff Macklem, in his own post-rate cut press conference gave little insight, saying, “We don’t know what new tariffs will be imposed, when or how long they will last. We don’t know the scope of retaliatory measures or what fiscal supports will be provided.” Mr Macklem just about sums it up.

Russia, never far away from the action

Wherever Moscow turns to at present it must feel as if it surrounded by enmity. The Russian Bear has enjoyed pariah status since the invasion of Ukraine, but the wiggle room afforded to it by allies of convenience is becoming scarcer as the bite of sanctions introduced by the former President Biden start to take hold. Israel’s systematic taking out of Iranian proxies in the Middle East led to the fall of a friendly Syria and whatever future President Trump is plotting for Iran, the Islamic Republic will hardly wish to provoke a boorish White House by keeping its currently strong political ties with Russia active. In terms of oil relationships, even the usual nose-thumbing Asian giant consumers of China and India are wary of starting on the wrong foot with a freshly sworn in, full-throated Mr Trump.

The war has been a boon for Russia’s economy. Strong government demand borne out of the spending on military requirements had for some time, post-invasion, seen something of a boom. Indeed, it is estimated that in 2024 Russia spent nearly 8% of GDP on weapons which will be repeated in 2025 and according to the German Institute for International Security Affairs is a post-Soviet record. However, the institute goes on to warn that the huge creation of new jobs in the arms industry has led to a workforce squeeze. The Bank of Russia reported in December of unemployment dropping to historical lows and wages have hiked accordingly. This has led to eye-watering levels of interest rates as the bank in December kept its rate steady at 21% because inflation is described as ‘out of control’ by the Moscow Times with the December CPI reading of 9.5%, but on an annualized basis for 2024 reads at over 11%. The balance of risk in inflation remains to the upside, yet it will be interesting to see if the new wave of Biden sanctions will alter the Central Bank’s path at its next rate meeting of February 14.

There can be little doubt that affording such extravagance in military profligacy was very much enabled by the huge revenues in energy Russia received as oil and gas prices soared after it sent its tanks marauding into Luhansk, Donetsk and Zaporizhzhia. Petrodollars continued to roll in even after price caps and sanctions were introduced because energy-strapped Europe took an age to wean itself off the addiction it had developed toward cheap Russian fuels. One only needs track the price of Russian Crudes to give an understanding of how the nation’s exchequer will be continually restricted in revenue by oil’s devalue and indeed the reluctance of buyers at present to take feedstock from sanction/tariff ravaged Russia. ESPO, significant because of its use in exports to China, has fallen from $110 in March 2022 to the current $78/barrel value. Sokol, from $115 to $73/barrel and Urals from $105 to $65/barrel. Admittedly, the high starting point was obviously the war spike, however, it highlights the point of decreasing revenues exacerbated by price caps.

The fall in barrel value has up until now been mitigated by shipping chess being played within the ‘dark fleet’ as export volume for Russia remained high into countries willing to cast a blind eye to nefarious ship-to-ship transfers and questionable ownership. The precision of the Biden sanctions and a Donald Trump presumably more than willing to enforce them, utilising them as hook to drag President Putin to war negotiation, has blown this practice apart. Within the sanctions there is a forgiving transitional period between February 27 and March 12, in which oil transactions involving sanctioned vessels may be completed but after that the estimated 10% of the global fleet will in fact have to go dark and empty. Platts, Reuters and Bloomberg reckon on India’s crude imports of Russian origin being up to 40% of total intake and China’s being 20%. What is more, in the grace period given to current delivery obligations, Russian Crude laden carriers languish off China’s coast as the refiners try to qualify the legality of allowing them to offload.

Such is the unwillingness to be caught in the crosshairs of the US administration or even the demurrage of unfulfilled contracts, Reuters report both China and India have suspended purchases of Russian oil as of March. Trump’s berating of OPEC, its policy to keep oil prices artificially high and complicity in aiding the funding of the Ukraine war has already seen reaction. An ad-hoc meeting of some the senior members of the cartel occurred in Riyadh which is only a few days before the official OPEC+ meeting. The group probably needs only to rubber stamp an intention to keep with the programme of bringing back shuttered barrels in April to keep favour with ‘bellicose one’, but oil prices will feel pressure, and again Russian income.

The international trading walls of the oil market are currently closing in on Russia and with it the country’s ability to generate overseas income. Given time, skillful Russian strategists will conspire a way in which it once again floats oil to the bargain hunters of the world. However, the strains of inflation, interest rates and other suppressing domestic economic factors may not allow for the patience game so much a part of Russia’s psyche. There are so many loose ends as to how sanctions play out, a forcing of Putin to a Trump table or a resurrection in Russian crude buying that weaving them into coherent predictability is impossible, much like the rest of our current oil market drivers. However, and where oil practitioners must take note, it is always recommended to keep an eye on the Russian Bear, particularly a wounded one.

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