Vladimir Putin’s hero and his namesake, Vladimir Lenin, once said that there are decades where nothing happens; and there are weeks when decades happen. This is, indeed, the zeitgeist of 2025, when investors, politicians, partners, and foes are all desperate to decipher how the US administration’s moves and announcements might affect economies and relationships. It is becoming abundantly clear that the two most salient driving forces are possible trade wars and the US-Russian rapprochement.

On the tariff front, the picture remains blurred as a coherent agenda keeps lacking. Or maybe the realization is dawning on President Trump that imposing punitive measures would do more harm than good to the US economy. Although he threatened to impose 25% tariffs on EU goods, he also implied another month of delay in introducing excise duty on Mexican and Canadian imports. The recent sluggish performance of the stock market, which received temporary support from soaring Nvidia revenues yesterday, might have precipitated the seemingly inevitable change in belligerent rhetoric.

For our market, the progress in Ukrainian peace talks without Ukraine and the revival of economic co-operation between the former adversaries will have a tangible impact on oil supply. Talks will continue in Turkey today and it will be intriguing to see what concessions, if any, Trump can squeeze out of Putin whilst the Ukrainian President will travel to the US tomorrow to sign the agreement to jointly develop the country’s mineral riches. The weekly US oil inventory reports, which showed unexpected crude oil draw and builds in distillate and gasoline stockpiles are fading in relevance as geopolitics remains on the centre stage. In the meantime, prices are stabilizing this morning around their 2-month lows as Mr Trump reversed Chevron’s licence to export Venezuelan oil. Markets like clarity as opposed to uncertainty and unless a clear path is presented on tariffs and Eastern European peace it will remain on the defensive with the sporadic and spontaneous headline-based rallies.

Enormous Supply Uncertainty

The jury is very much out on how the political and economic agenda of Donald Trump will impact growth globally and regionally. It is, therefore, an onerous undertaking to try and foresee the potential impact it might have on oil demand and oil demand growth. Reciprocal tariffs, tax and spending cuts could elevate inflationary pressure and dent economic prosperity. Interest rates in the US and other economic juggernauts can be impacted positively or negatively. An eventual rise in inflation will force central banks to put rate cuts on ice or worse, start increasing borrowing costs again to rein in galloping aggregate demand and consumer prices. Even if one is bold enough and forms a tenacious view on the impact on the economy and oil demand it is more than challenging to quantify the potential effect.

Supply is equally ambiguous. One minute, the threat of punitive tariffs on Canadian and Mexican oil exports to the US looks credible, which is then followed by a month of reprieve. The danger of escalating Iranian sanctions is real but in the same sentence diplomatic solution is the preferred way forward. The Ukrainian war was meant to be resolved by putting pressure on OPEC to up output, push prices down, and cause economic harm to Russia in order to force them to accept a fair peace deal. A month later Vladimir Putin was embraced by Donald Trump, Ukraine was left to hang out to dry and the two countries, Russia and the US are on the verge of resuscitating economic partnership. Uncertain backdrop it is, but at least the effect on supply can be measured, something that we are attempting to do below. We choose the best and the worst-case scenarios after arbitrarily but probably reasonably picking Canada, Mexico, Venezuela, Iran and Russia, the countries that are chiefly in the crosshair of the US regarding oil production, with a combined output level of around 20 mbpd.

Should the trade war between the US and its neighbours escalate and tariffs be imposed on oil exports, the impact would mainly be felt on differentials and be minimal on flat price. Combined Mexican and Canadian crude oil exports to the US hovers around 4.5 mbpd. These barrels would not be lost but most probably re-directed to other refining centres of the world whilst the US would be forced to ensure alternative and more expensive supply. It would be similar to the re-adjustment of Russian oil flow after the Ukrainian war broke out and would also result in longer shipping journeys akin to what was experienced at the end of 2023 when the Suez Canal was practically closed. For these reasons, oil might get somewhat pricier, but it is the US crude differentials that would bear the brunt of the tariffs, just like at the beginning of the month when their premium to Canadian grades jumped almost $2/bbl overnight, steeper than the actual change in flat price.

The stakes are much higher concerning the other three countries. Venezuelan output is currently around 900,000 bpd. It is down from 2.4 mbpd in 2016 but higher than the 340,000 bpd registered in June 2020. It is a swing of nearly 2.8 mbpd. Of course, an increase in Venezuelan supply will be slow and gradual as the country is in dire need of investment but increasing output to 1.3-1.5 mbpd in a relatively short period seems realistic.
Should Iran’s exports approach zero due to the tightening of the US sanctions screw the loss would amount to around 1.5 mbpd from the current level whilst lifting the export ban might add an extra 1 mbpd to the international markets. (The country exported 2.5 mbpd) before the 2018 US embargo.) This is a chasm of 2.5 mbpd. Russia’s current output level is close to 9 mbpd, which compares with over 10 mbpd pre-Ukraine. In the unlikely case of stricter sanctions falling below 8 mbpd cannot be excluded.

The difference between the lowest and highest prediction is a whopping 6 mbpd with the range between 15.64 mbpd and 21.99 mbpd. Since the present combined output level is 20.64 mbpd, the risk is bigger on the downside than vice versa. Admittedly, the above calculation is a rudimentary approach, which does not take into account unforeseen developments, such as increased OPEC+ production in case of a shortage, the pace at which producing countries are able to ramp up output or the positive impact of a possible supply surplus on oil consumption. What it does, however, is that it illustrates the precariousness of oil supply on the global oil balance. To translate it into the language of oil price forecasts, the difference between the most optimistic and pessimistic assumptions is more than $30/bbl. End-2025 Brent price is seen at $67/bbl in case of 1.3 mbpd of supply being added to the market (all other factors unaltered in the formula) or just over $100/bbl should 5 mbpd be taken off. These are the extremities and whilst they are unlikely to occur, especially the ‘high price’ scenario given the US aversion to dear retail gasoline prices, they hopefully provide a sensible explanation as to why it is risky to commit oneself to either direction for the long-term and why headline trading is seen as the safest approach in the current economic and political climate.

Overnight Pricing