The oil experiences a sharp decline. The barrel of Brent crude oil fell by up to 1.8%, to US$78.7, while WTI fell 2.5% to US$75.9. This drop comes after the announcements made by the president of the United States, Donald Trump, about an increase in the production of oil in the country.
One of the decisions that directly impacted prices was the delay in the implementation of tariffs, which generated an environment of uncertainty. Trump had promised to impose a 25% tariff on oil imports since Canada and Mexicobut the measure was postponed until February 1, unlike what had been anticipated, when it was expected to come into force from the first day of his mandate.
Following these comments, The dollar saw a rally as Trump hinted that the tariffs would mainly affect neighboring countrieswhich influenced the price of crude oil. Since oil is priced in dollars, an increase in the value of the US currency makes crude oil more expensive for buyers using other currencies, which can curb demand in international markets. This phenomenon translates into increased costs for consumers and businesses outside the US, particularly in countries with weaker currencies.
The president also referred to the possibility that his administration would stop buying oil from Venezuela, a country of which the United States is the second largest buyer, behind China. Besides, Trump pledged to replenish strategic oil reserveswhich under the Biden administration, were significantly reduced due to the sale of 180 million barrels to counteract the impact of the Russian invasion of Ukraine on fuel prices.
As for long-term plans, Trump announced his intention to modify the United States’ energy policy. With the motto ‘Drill, baby, drill’, its goal is to maximize crude oil and natural gas production, especially in Alaska. Furthermore, he proposed reverse environmental policies implemented by the Biden administrationsuch as the withdrawal of incentives for electric vehicles and the exit from the Paris Agreement. These decisions notably affected the shares of renewable energy companies, which faced falls in the stock market.
The potential of the US, according to Trump
During his inauguration speech, Trump highlighted the energy potential of the United States, mentioning that the country has the largest oil and gas reserves in the world. According to his vision, this will make it possible to reduce prices, fill strategic oil reserves and become a major energy exporter, which would consolidate the nation’s energy supremacy.
However, it remains to be seen whether these policies will have a significant impact on US oil production, which is already at record levels. According to the report by Swiss bank Julius Baer, the “deregulation” announced by Trump is not expected to lead to a notable increase in drilling.
The entity highlights that the Inflation Reduction Act (IRA), promoted by Biden, has solid Republican support, as it has encouraged significant investments in clean energy, particularly in the Rust Belt, one of the most deindustrialized regions in the country. US This law is unlikely to be repealed, given its popular support.
According to Julius Baer, energy will continue to be high on the political agenda, although fuel prices do not appear to be a significant inflationary factor at this time. For his part, Norbert Rücker, research director at Julius Baer, warns that energy markets are sensitive to geopolitical and supply risks, as demonstrated by the situation in Russia and Ukraine. However, negotiations in Europe and the Middle East could lead to more oil supply, which is likely to stabilize prices as conflicts in these regions are resolved.
Source: Ambito
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