Oil prices posted a drop this week, the first this year, following US President Donald Trump's remarks on Thursday asking Opec to bring down the cost of crude.
Concerns about Mr Trump’s trade policies and proposed tariffs on China, the world’s leading oil importer, are also weighing on prices.
Brent, the benchmark for two thirds of the world’s oil, settled up 0.27 per cent to $78.50 a barrel. West Texas Intermediate, the gauge that tracks US crude, settled up 0.05 per cent to $74.66.
Brent has lost 2.8 per cent this week, while WTI was down 4.1 per cent.
“From the campaign, we knew that Donald Trump wanted lower oil prices to fight US inflation, but so far, his focus was on rising US crude production. Now, he asks Opec to help him. Also, if prices would fall from current levels, that would, in my view, not really support stronger US production growth,” Giovanni Staunovo, strategist at UBS, told The National.
“Opec+ target is and remains to keep the oil market in balance. So, supply additions would require lower non-Opec+ supply growth and/or supply disruptions.”
Mr Trump said in his virtual address to the World Economic Forum in Davos on Thursday that if oil prices came down, the Russia-Ukraine war would “end immediately”.
“Right now, the price is high enough that that war will continue. You've got to bring down the oil price,” he said.
Two weeks ago, the US and UK toughened sanctions on Russia’s energy industry, intensifying pressure on Moscow as the war in Ukraine nears its fourth year. The new measures, designed to hit Moscow's energy revenue that is fuelling its war machine, targets individuals and Russian entities, including Gazprom Neft and Surgutneftegas, both major players in the Russian oil industry.
“WTI and Brent crude oil prices have spent the past week drifting lower following a very strong start to the year that saw prices gain more than $10 on a combination of an exceptional cold winter temporarily lifting demand for heating fuels and diesel and, not least, the latest rounds of US sanctions on Russia’s oil industry, which went much further than expected,” said Ole Hansen, head of commodity strategy at Saxo Bank.
However, after a strong start, “the mood among crude oil traders has in the past few days shifted back to one of caution, with the focus now squarely on Washington and the increased uncertainty caused by a wave of Trump announcements following his inauguration”, he added.
Traders have also been keeping a close eye on what polices the Trump administration will institute in relation to Iran and trade. During his previous term in the White House, Mr Trump exerted maximum pressure on Iran to limit its energy exports.
“Against market expectations, global oil inventories have continued to decline amid strong compliance by Opec+ producers to the agreed quotas. Trump, meanwhile, has added to the supply-side risks with his desire to apply ‘maximum pressure’ to Iran while potentially cutting imports from Venezuela,” Mr Staunovo said.
He added that risks to oil prices remain skewed to the upside in the short term.
“US crude production stands at a record level, but the growth rate has slowed down in recent years. We expect modest US crude supply growth in 2025, as current prices don’t incentivise drilling more despite Trump’s ‘drill baby, drill’ mantra. Oil demand should grow in line with the long-term growth rate of 1.2 million barrels per day, with the oil market almost balanced this year,” Mr Staunovo said.
Mr Trump’s expectations of convincing the Opec to increase output needs to be made a reality for oil prices to significantly decline, said Vijay Valecha, chief investment officer at Century Financial.
"Maintaining the right price balance would be crucial even for his vision of increased US oil productions, as falling oil prices could act as an obstacle for domestic producers as well," he told The National.
"A way for the group to maintain balance could be gradually increasing production, lower than what was initially planned, while maintaining the right supply-demand dynamics."
