Wednesday’s unanimous ruling of the Federal Court of International Trade concluded that imposing blanket import tariffs is an executive overreach and does not satisfy the criteria of national emergency. (On a side note, the very same legal argument was used to strike down Joe Biden’s student loan relief programme.) Such a sweeping measure is the responsibility of Congress and is above the US President’s pay grade. The ruling demonstrated that Donald Trump is not only susceptible to the judgement of the bond market but also to the rule of law. It would be, however, foolish to believe that the global trade status quo has been re-established by the stroke of the pen. An appeals court temporarily allowed the government to collect tariffs, and the case will plausibly end up at a malleable Supreme Court. It is also worth remembering that even if implementing broad, across-the-board import tariffs, or to be precise fentanyl-related and reciprocal measures, on trading partners is irrevocably judged illegal and as such blocked, punitive measures on cars, car parts, steel, and aluminium will not be touched. Despite the temporary reprieve, one must not be mistaken. The administration will fight back on every imaginable front to overturn the decision of the federal court, chaos will ensue, and volatility will remain. The provocative ‘TACO’ acronym – Trump Always Chickens Out- will not apply.

Uncertainty and unpredictability will stay. In these circumstances, it is reasonable and even necessary to take regular snapshots and attempt to determine how the latest twists and turns could impact our market. Is there any danger of positive/negative supply/demand shock?

To begin with the global and the US economies. Assuming the latest ruling of the federal court will be reinstated in the future, it will encourage mutually beneficial international trade and economic growth, whilst the danger of the re-emergence of inflationary pressure would subside. After all, a blanket 10% tariff on almost every country will have been removed. Ebullient enough? Well, equities crawled higher but gave up most of the early gains. The dollar, on the other hand, weakened and bond yields rallied (but fell after the appeals court ruling). These are ominous signs of continuously turbulent times ahead mirrored in the rising number of Americans filing for jobless benefits for the first time, possibly the consequence of falling corporate profits.

Whilst in general, the court ruling might be considered a positive demand shock for oil as seemingly brighter economic prospects could incentivize consumption, the court ban must be viewed in tandem with the One Big, Beautiful Bill Act, which was passed in the House and waiting for the green light in the Senate, after which it will be signed into law. It will extend tax cuts, part of which was planned to be countered by excise duties and the other part by spending cuts on critical services, such as health and education. By any means, and especially if tariffs had to be repealed permanently, the budget deficit would widen, borrowing rates would rise and economic headwinds would intensify. Immediate constructive demand prospects will turn equivocal at best and disheartening at worst.

The supply side is equally positive for the short term but ambiguous for months ahead. Ephemeral support has been provided by the Canadian wildfires, the ban on Venezuelan crude oil exports and the possible force majeure in Libya. These, nonetheless, will pass as demonstrated by the $1/bbl sell-off yesterday. Not even an indisputably bullish EIA stats were able to brighten the mood. The main categories all drew with US distillate inventories at their lowest for 22 years, showing a deficit of 13% to the corresponding week in 2024 and 8.5% to the seasonal long-term average. We, therefore, are left to contemplate events in geopolitical hotspots, such as in the Middle East and Russia whilst also accounting for the impact of the change in OPEC+ output policies. Iranian nuclear talks could swing the supply pendulum in either direction. An eventual agreement, notwithstanding Israeli resistance, could add 500,000 bpd to 1 mbpd additional barrels to the global market in the space of a few months. A breakdown in talks and renewed hostilities might take off more than 1 mbpd of oil and possibly more if the Strait of Hormuz shipping artery or oil infrastructure in the region is affected. We recently argued that Russian oil supply and exports are not impacted adversely by existing Western embargo. This view will only need to be amended, rather drastically actually, in the unlikely case of the US imposing severe tariffs on those dealing in Russian energy.

These are the ’known unknowns’ on the supply side of the oil coin. What is given is that by the end of June OPEC+ will have made 822,000 bpd of extra oil available, which can grow by another 411,000 bpd in July, conspicuously loosening the oil balance. As Kazakhstan re-affirmed its reluctance yesterday to be an obedient player, the accelerated increase will most probably be extended for the third consecutive month. Desperate voices from US shale-producing regions keep warning of production growth constraints, but plateauing US production will not be able to offset the hefty increase in OPEC+ output, the result of prioritizing market share.

The perennially evolving political and economic landscape makes predictions on the oil balance and prices a valiant and even brazen undertaking. The present snapshot, and admittedly it will change, might insinuate a short-term price boost based on the ostensible ban on US tariffs. Yet when the contemporary Trump reality sets back in, investors will seek safety again leading to a price retreat, barring any unforeseen negative supply shock.

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