- Investors worried about the impact of Trump’s policies on the oil market.
- Analysts predict a surge in US oil production under Trump’s administration.
- US crude inventories increased by 958,000 last week.
Oil prices held near recent lows as market participants worried about the impact of Trump’s tariff and energy policies on supply and demand. At the same time, investors waited for data and the FOMC policy meeting to provide more clues on the future of monetary policy in the US.
Oil futures (Source: ICE, Nymex)
Since Trump took office on Monday, there has been uncertainty regarding his policy changes and when they will occur. At first, market participants had expected an immediate shift when he came into power. However, there was no implementation of new tariffs, which came as a relief to oil traders.
Nevertheless, the president has noted that he will impose a 25% tariff on Canadian and Mexican goods. At the same time, he has threatened a 10% tariff on Chinese goods. Tariffs are bearish for oil prices because they will likely hurt major economies. Notably, China’s economy has struggled to recover, and a new trade war with the US would undo some of the progress. Moreover, the country is a major consumer of oil. Therefore, a weak economy will translate to low demand for oil.
Meanwhile, analysts predict a surge in US oil production under Trump’s administration. If he implements his energy policies, the oil supply from the US will increase, loosening the market and hurting prices. Additionally, Trump has threatened tariffs and sanctions on Russia to end the ongoing war in Ukraine. An end to the war would remove the premium on oil. However, sanctions and tariffs on Russia, a significant oil producer, could tighten market supply.
Elsewhere, the recent Gaza ceasefire kept downward pressure on oil as it significantly reduced the risk of an escalation in the Middle East war. Hamas and Israel have exchanged prisoners and hostages, which has returned some calm to the region.
Meanwhile, data in the previous session revealed that crude inventories increased by 958,000 last week. Market participants expect more US data that will shape the outlook for Fed rate cuts. At the same time, they are awaiting the FOMC policy meeting set for next week. Economists believe the US Central Bank will keep rates unchanged. Therefore, traders will monitor the tone during the meeting and clues for future moves. A hawkish outlook will curb oil demand. On the other hand, more rate cuts will likely increase demand for fuel.