Quick Brief – Are oil prices headed for September’s lows?
- Oil prices tumble to a two-week low after Trump’s victory
- Stronger dollar on Fed pause bets weigh
- Tariffs on Chinese goods and demand concerns also drivers
Oil prices fell sharply lately, driven by a cocktail of developments, including a stronger dollar following Donald Trump’s election as the 47th US president, concerns about what that presidency means for China, the world’s largest oil consumer, disappointment about China’s efforts to stimulate the economy, and OPEC’s downside revision to demand for this year and the next.
Taking them one by one, the US dollar is likely to remain strong for a while longer as Trump’s tax cut and tariff policies are seen by market participants as inflationary measures that could delay rate reductions by the Fed. Indeed, according to Fed funds futures, there is a 37% for policymakers to take the sidelines in December, while the chance for that happening in January rises to 55%.
Now, a Trump presidency could impact oil prices, not only through the likelihood of higher inflation, but also due to increasing tensions between the US and China. A Trade War 2.0 could deepen the wound of the already hurt Chinese economy, while Trump’s “Drill, Baby, Drill” mentality could result in increasing US supply. Speaking about supply, OPEC+ decided to postpone a plan to start raising output in December, but they could agree to pump more at the turn of the year.
All these developments keep the risks surrounding oil prices tilted to the downside, suggesting that WTI crude oil may soon visit its September lows of around $65.70.
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