Oil Prices Dip Ahead of Trump Inauguration

Oil prices experienced a slight decline on Monday, with optimism regarding tighter supplies due to stricter U.S. sanctions against Russia being countered by caution ahead of President-elect Donald Trump’s inauguration.

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

After witnessing four consecutive weeks of strong gains, crude prices retreated slightly as traders awaited updates from Washington, especially as trading volumes were reduced due to the U.S. holiday.

Focus on Trump’s Inauguration and Energy Policies

Market attention is intensely fixed on Trump’s inauguration later on Monday, particularly since he had promised to implement increased trade tariffs targeting China, the largest importer of oil.

During a rally on Sunday, Trump reiterated his plans to boost U.S. energy production, indicating intentions to ease regulations on the domestic energy sector.

If U.S. production continues to climb, approaching record levels of over 13 million barrels per day in 2024, it could help mitigate the effects of the recent sanctions against Russia, thereby maintaining a steady global crude supply.

Furthermore, Trump plans to adopt expansionary economic policies during his term, which could bolster demand from the United States, the world’s top oil consumer. However, recent U.S. oil demand has shown mixed signals. Cold weather led to higher demands for heating fuels but also disrupted travel during the busy year-end holiday period.

An analysis from ING highlighted that "there is a fair amount of uncertainty in the markets this week because of Trump's inauguration and the executive orders he is expected to sign. Coupled with the U.S. holiday today, many traders might be opting to reduce their risk exposure."

Evaluating Oil Supply and Demand Trends

Traders are closely examining a somewhat mixed outlook for oil supply and demand. The recent U.S. sanctions on Russia have the potential to restrict global supplies. Yet, if Trump enforces significant trade tariffs on China, demand may soften.

China, which is experiencing ongoing economic challenges, is also seen as having diminishing crude demand. A report released on Friday indicated a 1.3% year-on-year increase in refinery activity in December 2024, although there was still an annual decline of 3.6% in the overall refinery output for that year.

Output and trade figures suggested that apparent oil demand in December was approximately 13.9 million barrels per day, a decrease from 14 million barrels per day in the prior month, yet reflecting a 0.6% year-on-year increase.

The People's Bank of China opted to keep its benchmark loan prime rate steady on Monday, as anticipated, and is likely to enhance its stimulus efforts in response to trade challenges under Trump’s administration.

Despite recent increases in oil prices, gains have been tempered by lessened tensions in the Middle East, particularly following a prisoner exchange between Hamas and Israel over the weekend under a ceasefire agreement. This development led traders to assign a smaller risk premium to oil prices.

(Contributed by Ambar Warrick)

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