- Trump talked with Russia’s Putin and Ukraine’s Zelenskiy about ending the Ukraine war.
- Data on Wednesday revealed an unexpected jump in US price pressures.
- Crude inventories rose by a bigger-than-expected 4.070 million barrels.
Oil prices ended 2% lower on Wednesday after news of a likely end to the Russia-Ukraine war under Trump’s administration. At the same time, US inflation data came in higher than expected, dashing Fed rate cut expectations.
WTI futures (Nymex)
During his campaigns, Donald Trump said he would not allow the Ukraine war to continue under his administration. On Wednesday, reports revealed that the president talked with Russia’s Putin and Ukraine’s Zelenskiy. Moreover, Trump said that the two leaders were ready for peace.
When it began, the Russia-Ukraine war was bullish for oil prices due to supply disruptions, which tightened the market. Although the impact faded with time, there was always the risk of an escalation that supported oil. Therefore, ending the war would hurt prices by removing the risk of supply disruptions.
Elsewhere, data on Wednesday revealed an unexpected jump in US price pressures that led to a decline in Fed rate cut expectations. Notably, the US CPI increased by 0.5% monthly, beating estimates of 0.3%. At the same time, the annual figure jumped by 3.0%, above estimates of 2.9%. The upbeat report pushed market participants to price 28-bps of Fed rate cuts this year, down from 37-bps.
High borrowing costs hurt oil prices because they curb economic demand. Furthermore, analysts are forecasting higher inflation due to Trump’s tariffs. This week, the US president imposed a 25% tariff on steel and aluminium imports.
Moreover, he promised a reciprocal tariff on all US imports from countries with tariffs. The accumulating duties will likely boost economic growth in the US and reheat price pressures. Therefore, the Fed will have to remain on a hawkish path, keeping rates elevated for longer. Additionally, these tariffs might cause a global trade war that would hurt risk appetite. As a result, investors might dump risky assets like oil and rush for safer ones like gold.
Meanwhile, there was further downward pressure on oil after data revealed an unexpected surge in US crude inventories. Stocks rose by 4.070 million barrels, beating estimates of a 2.400 million barrel increase.
Market participants also paid attention to the EIA and OPEC monthly reports. Both reports left the outlook for oil demand in 2025 and 2026 unchanged.
