Oil Prices Dip Amid Cautious Market Sentiment

Oil prices experienced a slight decline on Monday as optimism regarding tighter supplies, due to stricter sanctions against Russia, was countered by a sense of caution leading up to President-elect Donald Trump’s inauguration.

As of 07:15 ET (12:15 GMT), the price of crude oil for March delivery fell 0.2% to $80.61 a barrel, while WTI crude dropped 0.1% to $77.31 a barrel.

The modest drop in crude prices followed four weeks of significant gains, as traders awaited new developments from Washington, with trading volume limited due to the US holiday.

Focus on Inauguration and Energy Policies

Market attention is firmly on Trump’s inauguration later today. The President-elect has indicated plans to impose higher trade tariffs, specifically targeting China, the largest importer of oil.

At a rally on Sunday, Trump reiterated his commitment to boosting US energy production by reducing regulations on the domestic oil industry. This increase in US production—predicted to reach over 13 million barrels per day in 2024—could potentially balance the market by offsetting the effects of the recent sanctions against Russia, maintaining global crude supply.

Additionally, Trump has proposed expansionary policies during his term which could stimulate demand in the United States, the world's largest oil consumer. Recent trends in US oil demand have been mixed; cold weather has increased demand for heating fuels, while it has also hindered travel during the busy holiday season.

Analysts from ING noted, "There is a fair amount of uncertainty across markets leading into this week due to the inauguration of President Trump and the array of executive orders he is expected to sign. Coupled with the US holiday today, some traders may be opting to minimize risk at this time."

Demand and Supply Perspectives in Oil Markets

Market participants are currently weighing a complicated outlook regarding oil supply and demand. While the recent US sanctions on Russia may restrict global supply, demand could remain weak, especially if Trump enacts steep tariffs on Chinese imports.

China, which is the world's largest oil importer, has shown signs of decreasing demand for crude due to ongoing economic challenges. Data released on Friday indicated that Chinese refineries increased their processing rates by 1.3% year-on-year in December, even though overall refining activity for the full year of 2024 declined by 3.6% YoY, suggesting subdued domestic appetite for oil.

The reported oil demand in December was just over 13.9 million barrels per day, a slight drop from 14 million barrels per day the previous month but still up 0.6% compared to the same period last year.

On Monday, the People’s Bank of China maintained its benchmark loan prime rate, aligning with market expectations. In response to potential trade challenges posed by Trump's administration, Beijing is likely to enhance its stimulus measures.

Recent improvements in China's economy have been attributed to substantial stimulus initiatives implemented in late 2024. Additionally, easing tensions in the Middle East, particularly a prisoner exchange under a ceasefire between Hamas and Israel, has also led traders to lower the risk premium associated with oil prices, further contributing to the recent moderation.

(Contributors to this article include Ambar Warrick.)

Oil, Prices, Trump