The Trump Effect: Potential Impact to Crude Oil Prices

22 Jan 2025

By Priyanka Sachdeva, Senior Market Analyst for Phillip Nova

Oil Price Movement Before, On, and Following Trump’s Inauguration

2024 was the year of weakening global demand, as much as fears of an escalation in the Middle East also failed to keep Oil prices afloat. Dollar strength and fears of intervention in Federal Reserve easing in-fluxed further volatility, akin to an appetizer before a main meal, as soon as Donald Trump wins. The biggest flex Oil markets had early on in 2025 was easing demand and over-supplied oil market at least till the first half of 2025, keeping a lid on prices. But the Biden administration’s stricter sanctions on Russian Oil turned the tables in the blink of an eye. In the days leading up to Trump’s inauguration, oil prices exhibited steady volatility and added over 8% gains, reflecting market anticipation of a potential policy shift. Nevertheless, the announcement to expand U.S. oil production by opening federal waters to drilling tempered the bullish sentiment, causing oil prices to decline during the last few sessions. While OPEC+ production cuts provided a positive start to 2025, the actions of Trump’s administration introduced bearish undertones, hindering potential gains from the newly indicated policy directions.

Additionally, the oil markets are convinced that going forward President Trump will favour imposing more sanctions on Russian, Iranian, and Venezuelan oil. However, investors need to understand that while drilling more could increase production, it may not result in a significant addition of barrels immediately, especially compared to the immediate tightening of supplies due to sanctions. This presents a risky trade-off, and for now, the only certainty is volatility in oil prices.

Oil Outlook in the Context of Trump’s Energy Policies

Trump’s reversal of Biden-era restrictions, including the opening of federal waters for drilling, highlights a production-focused agenda. This approach is likely to apply downward pressure on oil prices in the medium term. However, once Trump’s sanctions on Russian, Iranian, and Venezuelan oil take effect, the increased U.S. output may be able to counter the potential global supply losses. Until we achieve clarity regarding the cause and effect of Trump’s potential shift in energy policies, OPEC+ adherence to production cuts will serve as a counterbalance against easing geopolitical tensions in Gaza.

Moving forward, the balance between how much oil is lost from global supplies due to stricter U.S. sanctions and how much additional drilling increases U.S. exports will shape oil prices. The interplay between U.S. expansion and OPEC+ discipline will define the trajectory of oil, with prices likely hovering between $70 and $85 per barrel, barring major geopolitical shocks.

Adjustments by Oil-Producing Nations and Markets

In my opinion, expecting another downward adjustment to production quotas from OPEC members is unrealistic. Any adjustments that may occur will depend on whether Chinese authorities successfully ramp up economic activity as promised. With stricter sanctions on Russian oil, China and India have lost the leverage they once had in sourcing cheaper oil from Moscow. They will need to explore other options, and any significant increase in demand could lead to a dramatic rise in prices.

Investors shouldn’t forget that the primary trigger that led to Inflation back in 2022 was elevated Oil prices. If Trump’s tariff on the globe and surge in Oil prices go hand in hand, Emerging markets could face heightened fiscal pressures, potentially leading to inflationary trends.

Implications for Singapore Investors

Trump’s energy policies are poised to redefine the global oil market landscape, necessitating vigilance and strategic adaptability for both policymakers and investors. Over 200 directives on tariffs, changes in Energy policies, and a ban on illegal immigration, etc were anticipated as soon as Trump joined the White House. The timeline was pushed back last night but whether they came on day 1 or day 15^th or in a phased manner over a few months the ripple effects are set to transition bi-lateral Trade and fluctuation in Currencies.

Singapore, a major oil-trading hub, Lower oil prices might benefit industries such as aviation and manufacturing, offering short-term investment opportunities. Conversely, inflationary pressures in oil-exporting nations could weigh on the global economy, potentially impacting Singapore’s trade-dependent sectors. Diversified portfolios, particularly those balancing energy exposure with other resilient sectors, will be essential to navigating this complex environment.

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