By Giulia Petroni
Here is a look at what happened in oil markets in the week of Jan. 20-24 and what the focus will be in the days to come.
OVERVIEW: Oil prices have come under pressure this week after a robust start to the year, with U.S. President Donald Trump's raft of energy policies and proposed trade tariffs dominating market sentiment. Crude benchmarks are headed for weekly losses of around 3.5%-4%, with Brent crude trading at around $78.08 a barrel and West Texas Intermediate at around $74.23 a barrel. Meanwhile, a rare winter storm in the southern U.S. threatened to disrupt oil production, while Russian oil exports dropped significantly due to U.S. sanctions.
MACRO: Trump's presidential inauguration and first days in power have unsurprisingly dominated the news this week. The newly elected President quickly turned to the energy agenda, outlining plans to boost domestic oil-and-gas production that include rolling back drilling restrictions in the Arctic and lifting a freeze on LNG export permitting. He also set about dismantling key components of his predecessor's climate policies.
Oil prices fell on the prospect of higher U.S. production, as the market already faces a supply surplus this year. Still, some of Trump's policies--including plans to refill strategic reserves, potentially axe further sanctions on Russia and to stop buying oil from Venezuela--could ultimately tighten the oil market.
GEOPOLITICAL RISKS: Prospects of U.S. tariffs on Canada, Mexico and China under Trump's presidency have sparked fears of a trade war that could hurt global demand and dampen growth. The president threatened to impose a 25% tariff on imports from Canada and Mexico from Feb. 1 and said he was considering a 10% punitive duty on China, in response to fentanyl flows from the country.
He also threatened Russia with strengthened sanctions and tariffs if an agreement to end the war in Ukraine isn't reached soon--a move that, if implemented, could significantly disrupt supplies and push prices higher.
Meanwhile in the Middle East, Israel launched a major military operation in the occupied West Bank after reaching a ceasefire deal with Hamas in Gaza. But for now, the risk premium to oil appears low, given the lack of any significant supply disruption.
SUPPLY AND DEMAND: In a speech to executives at the World Economic Forum in Davos, Trump said he will ask Saudi Arabia and OPEC to lower oil prices, implying a need for the cartel to raise output. OPEC and its allies have cut production in recent years to help support higher prices. Despite agreeing to lift those restrictions in 2024, they have repeatedly delayed the move in response to weaker prices and demand trends.
In other news, the latest batch of U.S. sanctions against Russia's energy sector are hitting seaborne exports, according to Bloomberg-compiled data. Daily flows were down 9% last week and the four-week average is close to a 16-month low. U.S. sanctions on Russia and a potentially tougher stance against Iran could wipe out a projected oil supply surplus over the course of the year, pushing prices higher, Citigroup analysts said.
The U.S. Energy Information Administration reported that oil inventories fell for a ninth consecutive week, reaching their lowest level in almost three years, while gasoline stocks continued to build in the week ended Jan. 17.
WHAT'S AHEAD: All eyes next week will be on the Federal Reserve's interest-rate decision and Chair Jerome Powell's remarks. The U.S. central bank is expected to hold rates steady on Jan. 29, with the latest U.S. economic data suggesting no deterioration in labor market conditions.
Traders will also continue to assess the impact of Trump's policies on economic growth, energy security and geopolitical risks, as more details emerge.
Write to Giulia Petroni at giulia.petroni@wsj.com and Joe Hoppe at joseph.hoppe@wsj.com
(END) Dow Jones Newswires
01-24-25 1157ET