Oil Prices Plummet as Trump Declares National Energy Emergency
Market Oversupply Concerns Take Center Stage
Oil prices took a hit on Tuesday, plummeting 1.1% to $79.29 per barrel, as U.S. President Donald Trump declared a national energy emergency on his first day in office. The move sparked concerns of increased U.S. output in an already oversupplied market.
Record U.S. Oil Production Weighs on Demand
According to Mizuho analyst Robert Yawger, the real issue lies not with oil supply, but with demand. With U.S. oil production at record levels and OPEC+ curbing output by 5.86 million barrels per day, the market is awash with oil. “What there is a shortage of is demand,” Yawger emphasized.
Refiners Hold Back on Crude Purchases
As refiners don’t need to produce more fuel, they’re not buying crude. This lack of demand is expected to continue, driven by weak economic activity and energy transition efforts in top-consuming nations like the United States and China.
EIA Predicts Price Decline
The U.S. Energy Information Administration (EIA) reiterated its expectations for oil prices to decline this year and next. “Strong global growth in production of petroleum and other liquids and slower demand growth put downward pressure on prices,” EIA economists wrote.
Tariff Delay Eases Refiner Concerns
Trump’s decision to delay imposing 25% tariffs on imports from Canada and Mexico until February 1 helped ease concerns among U.S. refiners, many of which rely on crude oil from these countries.
Venezuelan Oil Imports in Question
The U.S. president’s statement that his administration would “probably” stop buying oil from Venezuela, the second-biggest buyer after China, had limited impact on oil prices.
Strategic Reserves Refill Plans
Trump’s promise to refill strategic reserves was met with skepticism by analysts, who questioned whether it would make any significant changes to oil demand.
Red Sea Shipping Disruption Nears End
The potential end to the shipping disruption in the Red Sea, following Yemen’s Houthis’ announcement to limit attacks on commercial vessels, also weighed on prices on Tuesday.
Market Outlook
As the oil market grapples with oversupply concerns, prices are expected to remain under pressure. With record U.S. oil production and weak demand, the outlook for oil prices remains bearish.
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