Markets are looking with anticipation to the meeting between US President Donald Trump and his Russian counterpart, Vladimir Putin, on Friday. Headlines have emphasised its significance, as it is the first time Russia’s president has landed in the US for a bilateral meeting since the Bush Administration. But the Trump Administration has tried to downplay the event, saying it’s a “listening exercise” intended to see if Russia is willing to end the invasion of Ukraine.
Optimism about a potential end to the war has driven down oil prices. The presumption is that a peace deal will mean Russian oil can return to formal markets, and Western leaders will reduce sanctions. But that downward motion has stalled as US officials warn of severe consequences if Putin doesn’t agree to stop the war. US Treasury Secretary Scott Bessent said on Wednesday that secondary tariffs on countries that buy Russian crude, already authorised against India, could be expanded. The lack of clarity on what could happen leaves the crude market vulnerable to a major shock this weekend.
A Complicated Moment For Oil
The negotiations come within a shifting context for crude prices, as well. The IEA released a report on Wednesday, once again reducing its demand outlook for the year. After OPEC+ continued to ramp up production by winding down its voluntary curtailments, the IEA said it expected supply to exceed demand. This adds additional downward pressure to crude, which has been propped up over the last couple of months primarily from geopolitical issues instead of market forces.
Typically, when there is a high-level meeting like the Trump-Putin summit this week, representatives have already made the bulk of the negotiations. The meeting is just the formal signing. That allows the market to anticipate the event and smooths the reaction. But, with both sides reluctant to disclose what they intend to get from the meeting, it’s hard for the market to anticipate the outcome. This means there could be wide swings as the meeting unfolds.
What Points Could Move the Market
Essentially, two things could result from the meeting, both with very different impacts on the markets. The first is the possibility that Trump and Putin agree to a ceasefire arrangement that can be presented to Ukraine and its allies and get an affirmative response. Polls show growing support in Ukraine for a ceasefire, though there remains strong opposition to ceding territory. Trump has said the purpose of the meeting isn’t to discuss land, but the situation could be fluid.
In that eventuality, risk sentiment could bump up, affecting a wide range of assets, including the dollar. Crude prices could be the worst hit and drag on the CAD, while gold prices would also likely decline as traders move out of safe-haven assets.
The Chance of Escalating Tensions
The more likely outcome is some form of continued disagreement. Trump and Putin may reach a framework accord that is not acceptable to European leaders. This would likely prompt the White House to increase pressure on its allies to agree to the terms, potentially with renewed threats of tariffs. This could provide some support to crude, as it would mean Russian supply would remain curtailed for longer. But the risk aversion around trade and worries about economic growth could limit the upside for other assets.
The other possibility is that Trump concludes that Putin is unwilling to negotiate a ceasefire. That might mean that the US turns to putting more pressure on Russia, ramping up the secondary tariffs already threatened. The last time that happened, WTI rose to $70/bbl. It’s also possible that Trump takes other measures to apply pressure to Russia, raising geopolitical tensions. While that might help the price of crude in the short term, risk appetite could suffer in the face of the two nuclear powers showing increased animosity.
![Credit Card 160×600 [EN]](https://assets.iorbex.com/blog/wp-content/uploads/2023/06/13144507/Blog-Banner_EN-Banner_160X600X2.webp)
