Why crude prices could be immune to Trump upheaval
Opec’s expert orchestration of the flow of barrels into the market, read alongside the increased production in non-Opec countries, will ensure steady oil prices
The Joe Biden administration’s sanctions on Russian oil hit the latter’s oil exports, sending the Brent crude benchmark above the $80 per barrel. Imagine a decidedly grim picture: The Donald Trump administration maintains the sanctions or fails to secure Congressional approval to lift them or even escalates restrictions, gradually throttling Russian oil, then has trouble with Iran, unleashing additional sanctions, and is locked in a tariff war with Canada.
Russia remains the world’s third-largest oil producer despite the sanctions. It has overtaken Saudi Arabia as China’s top supplier, largely through “shadow fleets” — ageing tankers that evade the US sanctions — that feed China’s small, privatised teapot refineries. Since the onset of the war in Ukraine, it has become India’s leading crude supplier. Yet, the steadiness in oil prices owes less to Russian supply dynamics and more to broader market pressures.
The seismic shift has been the emergence of the US as the world’s largest oil producer. It now wields its geopolitical influence through its export strategies while dealing with the complexities of its global refinery configurations. Moreover, the Organization of the Petroleum Exporting Countries (Opec) meticulously orchestrates the flow of barrels into the market, propping up a healthy oil price. Meanwhile, a surge in production from non-Opec players has added a new twist to the global energy narrative.
Together, these forces will maintain an uneasy but deliberate balance in the global oil equation.
The Biden administration’s sanctions were aimed at choking Russia’s ability to fund its war in Ukraine. Beneath this veneer lies a deeper reality — the US and Russia are increasingly direct competitors in Europe’s oil and gas markets. US crude oil exports have surged to four million barrels per day (mb/d) from just 700,000 b/d in 2017. Yet, Washington’s oil independence is more illusion than reality.
Despite its production prowess, the US remains import-dependent due to economic and chemical realities. Imported oil often undercuts US domestic crude because of lower lifting costs and strict US environmental and labour regulations. Moreover, American refineries, designed for heavy, sour crude from West Asia, Russia, and Canada, are ill-equipped to process the light, sweet oil abundant at home. So, although the US has reduced its dependence on Saudi oil significantly, it now leans heavily on Canadian crude, which has become its largest supplier. Canada has already threatened counter-tariffs on its discounted oil — which comes almost 13% cheaper for American refiners — if Trump enacts the 25% tariff on Canadian imports which have now been deferred to April. This could spark a regional energy war, pushing cheap Canadian crude toward Asian refiners and leaving US buyers scrambling for alternatives.
If Washington’s sanctions on Moscow persist or escalate, West Asia becomes the fallback option for the US — but Saudi Arabia is already charging American refiners a premium as part of its supply-control strategy. Meanwhile, Trump’s Iran hawks are urging tighter restrictions on Tehran’s oil exports. But Trump is his own person. He will need to strike deals with Canada, Russia, or West Asia and avoid a war with Iran — to keep the shipping chokepoints around West Asia relatively secure — ensuring low fuel prices at American gas stations. It is no surprise, therefore, that Trump has asked Opec to slash oil prices within the first 48 hours in office.
Opec+, which includes allies like Russia, is the second pillar of price stability. The group has held back 5.86 mb/d — roughly 5.7% of global demand — since 2022 to support prices. These cuts include 2 mb/d from the full group and nearly 3.85 mb/d in voluntary cuts by eight key members, led by Saudi Arabia. Initially planned to ease in January 2025, these cuts were extended until 2026 in December last year. A gradual unwinding of the cuts is now set to begin in April due to weak global demand and rising non-Opec production.
Saudi Arabia remains the oil market’s central banker — irrespective of who becomes the world’s largest oil producer. This is owing to its spare capacity, which is the extra volume that can be brought to production within 30 days and can be sustained for at least 90 days in case of emergencies. Saudi Arabia has a spare capacity of about 3mb/d and the rest of Opec+ sits on an additional 4mb/d spare capacity. Opec will manage its prices to ensure a comfortable margin to prevent a revolt within its own group who do not have as rich a balance sheet as Saudi Arabia and the UAE.
Also, there has been significant growth of production from non-Opec countries. Led by the US, Brazil, Guyana, Canada, and Argentina, non-Opec producers collectively pumped 53.1 mb/d in 2024 and are expected to add another 1.5 mb/d this year, according to the International Energy Agency (IEA). This increase will easily offset the modest 1 mb/d growth in global oil demand projected for 2025 by IEA, even if Trump escalates sanctions on Venezuela, an Opec member. With Trump at the helm, economic turbulence is anticipated, driven by tariffs and sanctions targeting countries with lopsided trade balances with the US or on account of other geopolitical considerations. Yet, oil prices are unlikely to gyrate in tandem with the broader market upheaval.
Futures traders who predicted $50-65 oil for this year misunderstood the vanity of oil producers, who are far too narcissistic to accept such low self-worth.
Shreerupa Mitra writes on energy and geopolitics. The views expressed are personal