Oil markets ease lower as Donald turns his attention elsewhere….

A tough week for those who have relentlessly followed the bullish uptrend which began at the end of 2024. As we closed that year, ICE Brent touched $74 a barrel, by mid January and the bulls were in charge as they pushed prices through $82 a barrel. Many of us, (well me!!) struggled to understand this price rise and what drove it. Whilst it’s not unusual for the oil market to pick up at the turn of a year, this time it seemed unstoppable especially with President Trump throwing penalty tariff notices at any country that wanted to sell their goods to America, Canada was first in the firing line, an odd decision by Donald, when we consider Canada sells 4 million barrels a day of crude oil to American refiners who badly need those barrels to make their road fuels. Affectionately described as a double whammy!!

However, a month is a long time in the oil business and by last Friday evening, ICE Brent had slid lower landing at a soft $74.66 a barrel. All bar 66 cents a barrel of those January gains had been wiped out. Whatever algorithmic driven sentiment caused that volcanic rise in prices just a few short weeks ago we may never know but the technical brainstorm seems to have passed…at least for now, and we will start the new week in calmer waters (of course, subject everything!!), quiet markets always seem to edge lower when the stories dry up.?As the dust settles, it presents a chance to figure where oil prices could go from here and what could influence them from an oil perspective in the coming days.

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For sure, Donald’s 17 new ideas and changes to the World’s relationship with America took investors focus away from oil, looking instead for better returns from other commodities. This left oil markets feeling a little lonely, and still reeling from the impacts of those Canada, China and Mexico stings, however, he achieved his goal, which was to get the undivided attention of?the custodians of those countries to pay attention to his demands!….Canadian Prime Minister Justin Trudeau agreed to reinforce the US-Canada border to clamp down on migration and the flow of the deadly drug fentanyl….. and?Mexican President Claudia Sheinbaum agreed to bolster the country's northern border with troops, and in return the US would limit the flow of guns into Mexico. Their decision to talk it through with him and receive 30 days delay to tariffs as a reward was certainly one reason oil prices began to slide midweek.?China didn’t escape his attention leaving markets concerned the potential for a trade war between America and China is growing which also made investors knees wobble these last few days.

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It’s worth noting China didn’t ask for a 30-day extension as both Canada and Mexico had done, instead they retaliated immediately to Donald’s announced tariffs on the import of their goods by announcing some of their own tariffs against America, but their response lacked a sting and was very specific, it was almost a token effort. As time goes by, we suspect all the above whilst serious, is designed to provoke a reaction from others which in turn brings them to the negotiating table baring their souls and agreeing to a deal Donald will accept!?This is clearly his style and when you are sitting in the White House with a “POTUS” name plate on the door to your office people are going to take notice!?

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Whilst Donald continues to sing his heavy metal “drill baby drill” mantra, many are brushing this threat aside. The U.S. continues to produce crude oil at a phenomenal rate, currently 13.478 million barrels a day, but that may be the highest level the U.S. is capable of in 2025 especially as growth in the country’s top shale formation spread across Texas and New Mexico ?(the Permian basin) is expected to slow a little this year to 250,000 barrels per day versus it’s 380,000 barrels a day growth in 2024.Last year this field produce 6.3 million barrels per day, almost half of U.S. oil production.

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Heavier sanctions have been imposed by the U.S. on individuals and tankers alleged to have helped transport and sell millions of barrels of Iranian oil to China in recent times. Donald considers the Biden administration was maybe a little too relaxed in applying sanctions to Iran in the past and wants to put maximum pressure on the Iranian authorities to show America still has Iran high on the agenda.?Meanwhile, Iranian President Masoud Pezeshkian called upon OPEC members to stand united against “destabilising” U.S sanctions on Tehran during a meeting with OPEC Secretary General Khaitam Al-Ghais. Ironically, dTehran assumes the rotating presidency of the organisation this year. Iran’s exports are officially described as being 1.5 million barrels per day currently, but that’s a long way away from production levels of double that.

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OPEC met this week via video conferencing, barely mentioning that production levels will remain unchanged, but did loudly proclaim the EIA and Rystat Energy had been dismissed from their roles of monitoring OPEC’s monthly production output and compliance levels and have been replaced by Kpler, OILX and ESAI effective immediately.?

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One countries loss is often another’s gain and the gain this time seems to favour Venezuela (probably a country which has the largest oil deposits in the World but strapped for cash to extract it!). Venezuelan oil exports have steadily risen month by month and in January were just over 850,000 barrels a day, that production was mainly bought by Chevron (who holds a sanctions waiver) and China who have been solid buyers of Merey crude, a 60/40 blend of heavy and sour crude oil.?

? In the meantime, oil markets feel rangebound again, probably awaiting Donald’s next move on everything that affects everybody else, although it does feel that an oil market around $75 a barrel is roughly ok for now. Until all the above-mentioned shenanigans play out, it’s hard to expect much volatility in ICE Brent but it must be said products are holding their ground. Sure, they lost value this week, but gasoline looks a little tighter in Europe, Nymex gasoline just seems to find buyers on any price dip, whilst naphtha is the only product to close higher on the week. Distillate/gas oil/ diesel stocks in the U.S. continue to fall in chunks. The weather has been one reason, but U.S. refinery maintenance has also slowed product flows. The Jazan refinery in Saudi Arabia (400,000 barrels per day capacity) has influence on markets across the board including the Mediterranean and Europe and is reportedly shut down for maintenance until March. So, despite Donald’s current global domination of everything , there are some good fundamental reasons why petroleum products might weather the storm and hold crude oil prices in the mid 70’s short term….. of course…subject the unexpected !!

This week closing guide prices:

ICE Brent 74.66 (-1.82)

WTI 71.00 (-3.05)

Ice gas oil 706.00 (-12.25)

Euro gasoline swaps 717.50 (-12.50)

Euro naphtha swaps 649.50 (+6.50)

Nymex gasoline 2.1050 (-1.51 cents per gallon)

LPG swaps 572.00 (-7.00)

Opec basket 76.45