Oil prices ended lower on Wednesday as the market balanced the impact of a stronger U.S. dollar and the potential for U.S. President-elect Donald Trump’s foreign policy to disrupt global oil supply. Brent crude futures dropped by 61 cents, or 0.81%, settling at $74.92 per barrel. U.S. West Texas Intermediate (WTI) crude saw a smaller dip, falling 30 cents or 0.42%, to $71.69.
The initial sell-off following Trump’s election caused oil prices to fall by over $2 per barrel early in the day, as the dollar surged to its highest level since September 2022. A stronger dollar typically makes oil, priced in dollars, more expensive for holders of other currencies, which weighs on demand and prices. However, market sentiment shifted as investors reassessed the situation and focused on short-term supply and demand outlooks.
Phil Flynn, senior analyst at Price Futures Group, suggested that initial fears of an oversupply driven by Trump’s energy policies had been overblown. He noted that while some uncertainty remained, the market had shifted its focus to the ongoing issues in the Middle East, which could tighten oil supply and provide some support to prices. “The market has a lot of problems on its hands, and the Middle East conflict remains a key factor,” Flynn said.
Trump’s reelection could potentially lead to renewed sanctions on major oil producers like Iran and Venezuela, which would further restrict supply and potentially push prices higher. Iran, an OPEC member, produces around 3.2 million barrels of oil per day, or about 3% of global output. However, analysts cautioned that imposing sanctions on Iran could prove more challenging due to the country’s experience in evading such measures.
Trump’s strong ties with Israeli Prime Minister Benjamin Netanyahu also raise concerns about heightened instability in the Middle East, which could disrupt oil production in the region. Analysts such as Andrew Lipow, president of Lipow Oil Associates, warned that the U.S. president’s continued support for Israel could add geopolitical risks to the oil market, potentially driving prices up further.
Despite the political uncertainties, experts agree that long-term trends in the oil market, including OPEC+ production decisions, refinery margins, and evolving supply-demand dynamics, will continue to shape price movements. Last week’s increase in U.S. crude oil, gasoline, and distillate inventories, as reported by the U.S. Energy Information Administration, also signals potential challenges to market balance, with rising inventories putting pressure on prices.
As global oil markets remain influenced by both geopolitical events and supply-demand factors, the outlook for prices in the near term remains uncertain, but the ongoing trade flows and inefficiencies in oil markets continue to play a major role in shaping the future of oil prices.
