Nearly a week since Donald Trump assumed office as the 47th President of the US, and declared a national energy emergency while promising to increase oil production in America, Brent crude oil prices have softened by around 3 per cent.
Brent crude oil prices were at $80.79 per barrel on January 17 (before Trump’s inauguration) but dropped to $78.26 a barrel on January 24.
Analysts expect the trend in crude oil prices to go downwards going forward on weak demand. For India, lower crude prices are expected to be a boon as they will reduce oil import costs, narrow the current account deficit and bring inflation down.
Kotak Securities Senior Vice President and Head of Commodity, Currency and Interest Rate, Anindya Banerjee, said that the surge in crude oil prices seen towards the end of 2024 and early part of January was because of the fresh set of sanctions imposed by the US on Russia, which the market did not anticipate.
“Now the realisation is coming on two fronts. One, post Trump there is an expectation of a resolution of the Ukraine-Russia conflict this year, and so the geo political premium on oil has evaporated a bit. Second, the focus of the US administration is to increase crude output. These two reasons have led to softening in oil prices,” Banerjee said.
In his inaugural address after taking oath on January 20, Trump announced a sweeping plan to maximize domestic oil and gas production.
“The inflation crisis was caused by massive overspending and escalating energy prices, and that is why today I will also declare a national energy emergency. We will drill, baby, drill,” he said.
Trump vowed to bring energy prices down, fill the country’s “strategic reserves up again right to the top”, and export “American energy all over the world”.
Implications of lower crude prices
Analysts said the drop in crude oil prices will help in narrowing India’s current account deficit and also help in a faster gross domestic product (GDP) growth. Since oil serves as a raw material for many industries, a lower price will ease input costs, thereby reducing inflation pressures. But there is one more factor that could come into play. The sweeping sanctions package announced earlier this month by the outgoing administration in Washington against Russia’s oil trade is an issue, which has already started having an impact on near-term supply of Russian oil to Indian refiners, who are finding it hard to secure enough cargoes for Moscow’s crude. The situation is forcing Indian refiners to look elsewhere—mainly to West Asia —to replace volumes from Russia, currently India’s largest source market for crude. How the Trump administration views these sanctions could be a factor going forward.
Road ahead
“The US policy is to drill more oil, which is going to create a higher supply of oil. Over the next few months, we expect oil prices to decline further because the Chinese economy is slowing so the demand for oil from there will reduce,” said Dharmakirti Joshi, Chief Economist, Crisil.
There could be some ups and downs but the softening trend in oil prices may continue, he said.