Just a week ago, crude oil WTI prices were hitting multi-month highs, with WTI going above $80/bbl. Since then, the story has been different. Although crude prices are still up for the year, they have come down substantially since their mid-January highs. The question now is if we just saw a correction, or a new trend?
One of the undeniable catalysts for the move is the arrival of Donald Trump to the White House, and naturally US policy will have an implication for future crude oil WTI prices. Among the flurry of executive orders he signed on the first day in office were several targeting oil (and related energy) specifically. Markets reacted accordingly, and there are reportedly more executive orders coming.
Hitting the Peak
Earlier in the year, and all through last December, as a matter of fact, crude oil WTI prices were rising over worries about supply. OPEC countries were sticking to keeping production curtailed, and the outgoing Biden Administration slapped renewed sanctions on Russia, as well as the European Union. The gas transit deal through Ukraine also came to an end. These were seen as the major catalysts pushing crude prices higher.
Then came the (much anticipated) ceasefire deal in Gaza, which is expected to help lower tensions in the region if it holds. Houthi rebels in Yemen have been targeting shipping in the Red Sea as a means of putting pressure on Israel. So if the hostilities between Israel and Hamas abate, then the hope is that shipping time from Asia and the Middle East will be reduced, and free up oil transit as well. While Trump is credited as having a hand in that, he’s more directly seen influencing the price of oil by signing executive orders that are expected to facilitate US oil production. That would help mitigate some of the supply concerns.
Is It All Downhill, Now?
The issues that drove up the price of crude haven’t entirely gone away. The Gaza ceasefire is still in its infancy, with many (including now US President Trump) expressing doubts it will hold. But, beyond that, there are other measures that Trump has taken that could reduce supply, at least in the short term. After all, even if his Administration allows for more exploration and drilling, it will take months and even years to build out production facilities for it.
In the meantime, the Trump administration is reportedly looking to put even more pressure on Russia in a bid to force it to the negotiation table to achieve Trump’s goal of a speedy resolution to the war in Ukraine. That includes potentially even more sanctions to stop Russian oil exports. Additionally, the new Administration is reported to be looking at reapplying sanctions on Iran that were in place during Trump’s first term. That could remove as much as 1 million bbl/day from the market.
An Uncertain Outlook
Markets have generally rallied in the aftermath of Trump’s inauguration, as the feared universal tariffs appear to not be imminent. But the positive vibes have not included oil, as market participants might be hesitant ahead of several risk events, such as negotiations for an end to the war in Ukraine, the US’ relationship with Saudi Arabia, and just how much of Trump’s energy agenda can be effectuated or snared up in legal battles.
But, with China’s economy expected to grow at a slower pace this year, Europe generally stagnant, and the world’s largest consumer (the US) also being the largest producer, there doesn’t seem to be all that much room for buying right now. That could keep the price of crude under pressure – unless there is an unexpected event, which the market seems to consider more likely given Trump’s history of delivering surprises.