Alamy via Reuters
Between 10am and 4:30pm on March 11 the tariff rate on Canadian aluminium and steel imports to the US was hiked to 50 percent, then dropped back to the original 25 percent.
Pity the unlucky trucker who crossed the border a few minutes late. With such turbulent policy it’s no wonder that stock markets and oil prices are nosediving.
Brent crude has slid almost continuously since a peak at $82.03 per barrel on January 15, just before Donald Trump’s inauguration. It slid below $70 on March 10. With the exception of a blip in September, it has not been so low since late 2021.
Two years of unusual stability, post-Covid and post-first phase of Russia’s war on Ukraine have come to an end.
For most of 2023 and 2024, as oil hovered between $70 and $90, the weekly reports on oil markets were almost monotonous.
There were worries about weak Chinese demand, hopes for US interest rate cuts, fears of geopolitical disruptions of Middle Eastern or Russian oil supply and persistent postponements of the plans of Opec+ to phase out some of its production cuts.
US oil production kept soaring in 2023, but showed signs of running out of steam in 2024. The American economy, though, powered ahead, a bright spot for oil demand. All these factors managed roughly to offset each other.
Houston’s shale executives want to deliver on promises of capital discipline
Now things have changed. The tariffs, lay-offs of federal workers, a possible government shut-down and the general economic uncertainty threaten a US recession and economic damage in Canada and Mexico, with spillover to other countries.
Levies on Canadian oil imports may not affect overall production much, but will encourage Canada to look for other market outlets and disrupt the smoothly integrated petroleum market in interior North America.
If Trump’s trade and verbal war against Ottawa escalates, Canada could retaliate by cutting back oil output overall.
“Drill, baby, drill,” is looking shaky, as oil prices fade and Houston’s shale executives want to deliver on promises of capital discipline and cash returns to investors, not breakneck growth.
US energy secretary Chris Wright is looking into refilling the Strategic Petroleum Reserve, which would add an effective demand of 400,000 barrels per day if carried out over the next two years.
It’s not just the trade wars, though. The off-on provision of US military aid to Ukraine and the White House’s proximity to the Kremlin raise the chance that sanctions on Russia are eased. Measures on Venezuela, conversely, have been tightened.
Trump has written to Iranian leader Ayatollah Khamenei suggesting a possible deal over Iran’s nuclear activities and the “maximum pressure” campaign against its oil exports.
But his administration has pressured Iraq on its energy purchases from Iran and is reportedly also looking into stopping Iranian tankers directly.
The sum of all this is hard to assess, but probably means at least a few hundred thousand barrels per day less on the market, at least initially.
And finally, there is Opec+. The group has at last steeled itself to begin reversing the voluntary production cuts made by a subset, including Saudi Arabia, the UAE, Iraq, Russia and a few others.
The size of the increase is a modest 138,000 barrels per day. It may be less if some countries live up to their promises to compensate for past over-production, though their past record is not inspiring.
If repeated every month this year, that will add more than 1.2 million barrels per day by year-end. The latest forecast from Opec+, released on Wednesday, held the forecast for demand growth this year at 1.4 million barrels per day. The International Energy Agency comes (IEA) in lower, at 1.1 million barrels per day.
Even the more bullish Opec+ view leaves hardly any room for additional non-Opec+ supply.
And yet the US’s Energy Information Administration sees total petroleum liquid supply outside Opec+ rising 1.9 million barrels per day this year and 1.6 million bpd in 2026.
If the oil market gets lucky – say, the IEA is over-optimistic on non-Opec+ output and the world economy overcomes current jitters – a steady return of the Opec+ barrels will still put severe pressure on prices.
Even before the decision to start easing cuts in April, output from Opec+ rose by 363,000 barrels per day in February.
More than half the gain came from Kazakhstan, which is now over-producing by 300,000 bpd. So the decision to boost the group’s output can also be a warning to those members, notably Kazakhstan and Iraq, who have been persistently above quota.
A boost to output is needed: to regain market share, to juice up demand, to warn under-compliers and to let competitors such as US shale know they can’t count on Opec’s benevolence forever.
But because of its past caution, the group now embarks on easing production at a time of gathering gloom, uncertainty and volatility.
Robin M Mills is CEO of Qamar Energy and author of The Myth of the Oil Crisis