Oil prices continue to bleed for the fourth day after reaching their highest levels in five months last week, with West Texas Intermediate, Intermediate and Brent crude falling by about 1%.
Oil losses come after Donald Trump was inaugurated as US President, who on the first day signed a set of orders that will increase crude production and put further downward pressure on prices.
According to The New York Times, Trump signed a series of important orders yesterday, many of which were related to energy. These included withdrawing from the Paris Climate Agreement and declaring a national energy emergency to suspend environmental and drilling regulations, in addition to canceling and reviewing previous decisions and programs to reduce the use of fossil fuels and pollution.
This will allow more crude to flow into the market, which is suffering from a supply glut, which may push energy prices further down, which is what Trump aspires to do in order to serve his agenda of reducing inflation. Lower energy prices are a key factor in lowering inflation overall.
Another issue that is grabbing the energy market’s attention is the trade conflict with China. Trump unexpectedly delayed imposing massive tariffs on China, according to Reuters. This also comes after Trump told his advisers that he is planning to travel to China to deepen ties with President Xi Jinping and negotiate a trade deal, according to The Wall Street Journal. Trump’s invitation to Xi to attend his inauguration, to which Xi responded by sending his vice president, not an ambassador, was seen as a conciliatory gesture that showed good faith, according to Reuters.
In addition, Trump told reporters when asked about the idea of comprehensive tariffs, “We’re not ready for that yet.” This contradicts his previous campaign rhetoric and shows his willingness to negotiate trade conditions, analysts also told The Journal.
With this pause, markets may remain in a state of confusion. According to The Times, administration officials will spend the coming months identifying countries with which to negotiate new trade deals, as well as conducting a comprehensive review of the U.S. industrial base to determine whether tariffs are necessary.
Moreover, with Trump’s reluctance to make major decisions on foreign trade, the potential negative impact of such tariffs could be a deterrent to a full-scale global trade war. According to The Journal’s survey, experts expect annual inflation in 2026 to rise to 2.6% from 2.3%, and to shave 0.2 percentage points off GDP growth this year.
The Journal’s Editorial Board also said that Trump clearly has a better sense of what he wants to do and how to do it, unlike how he was in his first term.
If Trump is indeed less aggressive and wiser in managing many issues — including foreign trade — we could see greater relief in the energy market as concerns about the future of the global economy ease in the event of a full-scale trade war. This trade war could put further pressure on the global economy to slow down and could prevent China from achieving its growth targets and could push the eurozone into recession according to surveys and forecasts that we have seen in recent months.
If China is able to obtain favorable trade terms that save it from the blow that exports may be exposed to and continues to take tangible support measures and we see their impact crystallize in the coming months, the oil market may get rid of one of the most important negative factors pressuring prices.
On the other hand, if geopolitical tensions recede if Trump can achieve his promises to establish peace and stop the ongoing wars, oil prices may lose any premium for these risks. Not only that, but we may also witness a return to the flow of Russian oil to the markets if Trump negotiates to end the war in Ukraine in exchange for lifting sanctions on Russia.
We do not know what Trump may do in his first days despite the many things he has said. As Karen Tumulty puts it in an opinion piece in The Washington Post, you should watch what Trump does and not be distracted by what he says, which is what he does best.
