What Does The Trump Presidency Mean For Oil Futures?
Written By Owen Higley
Political Drama
The talk of the town over the past few months has been all about the new presidency taking place in the United States; and before his second term even started, through strong future promises, Donald Trump had managed to shake up the commodity markets. More specifically, his promises to impose tariffs on countries such as Canada and Mexico while simultaneously increasing domestic fossil fuel production increased commodity market volatility. As his presidency officially started on January 20th, Trump aims to make good on his executive statements. After his inauguration stating that his administration was looking into policy which would impose 25% tariffs on Canada and Mexico come February 1, 2025 as well as proposing tariffs of more than 60% on China earlier in his campaign. While tariffs on some of our most dependable trading partners may ignite a sense of optimism in terms of boosting the domestic economy and watching important measures such as GDP fly upward; it could also be a cause for concern, potentially making the attribution of vital resources more challenging. In 2024 Mexico was the second largest supplier of oil to the United States, trailing only to Canada, which, for the past 20 years has been the largest oil supplier to the United States, exporting 4 million barrels per day to the states in 2024. Upon the recent political activity surrounding threats of new tariff imposition and Trumps inauguration overall, Canada's prime minister, Justin Trudeau, stated that Canada wouldn’t hesitate to respond “robustly” if the United States was to go through with tariff imposition. With Trump's presidency comes his high expectations of growth (aiming for GDP growth of double what it's been in recent years). However Trudea argues that without the plentiful resources Canada has to offer, no such boom will occur.
Declaration of A National Energy Emergency
To make matters even more serious and timely, an executive order released from the White House on January 20, 2025 states: “The policies of the previous administration have driven our Nation into a national emergency, where a precariously inadequate and intermittent energy supply, and an increasingly unreliable grid, require swift and decisive action.” The syntax relayed with this executive statement, in combination with tariff imposition on the United State’s two biggest oil suppliers makes it clear that Trump’s office plans to make policy decisions which will largely increase domestic oil production. From a commodities trading standpoint, there is now a reason to look into the question of how increased domestic production of resources, paired with less reliance on outside suppliers, will affect current prices (on the continuous contract) and estimates of future resource values. We’ve talked about all of the policy, and now have an understanding of all the current international affairs, so let’s look into how this recent sequence of events play into the commodities market.
Oil Futures and Why Prices are Dropping
Upon opening on January 16th, Crude Oil Continuous Contracts (CL00) were trading at $78.22, by 8:55 a.m. on January 20th, inauguration day, pre-market indicators had Crude Oil listed at $75.97 a price decrease of $2.25 and -2.87%, and month specific futures contracts for crude oil for the up and coming months of March (CLH25) and April (CLJ25) simultaneously showing price decreases but in greater magnitude, with price decreases as large as -4.17% over the past five days. To give a general explanation on why this is happening, it can truly be traced to the simple model of supply and demand in a forward looking matter. If words become reality, and domestic oil production does truly ramp up, the supply of domestic oil will increase. This increase in a domestically produced vital resource will have effects such as lowering transportation costs and will likely create less supply chain issues with resource acquisition that come with acquiring goods as imports. Ultimately, an increased domestic supply of oil will lead to lower oil prices. Based on the idea that trading commodities futures deals with buying a physical asset at a price listed “today” and selling it at the same price in the future taking the difference in either gains or losses, the idea of oil prices falling in the future due to increased domestic production has already begun to take precedence.
The bottom of the chart depicts the momentum of Crude Oil Continuous Contracts (CL00). When viewing a chart, the momentum line depicts the velocity of price changes and represents the speed of a stock's price movement, indicating whether the price is rapidly rising or falling. Connecting this line to real time events can give us some further insight about the reasoning for price changes within a given commodity. Just before noon on January 20th, the day of Trump's inauguration, an incredibly steep momentum line segment can be observed, falling in a downward direction therefore indicating a sharp price decrease for Crude Oil. This makes it clear that the commodities market responds dramatically to events that have the potential of lowering resource prices, Trump officially being inaugurated in this case. As seen through viewing the momentum at later periods of time, oil prices picked back up to levels closer to those which were sustained in the contracts 5 day average. This is likely due to the fact that tariffs have not yet been imposed yet, not to say that they won’t be soon. In closing, while the future is never certain, with Crude Oil prices falling in such a rapid manner with just the forethought of oil tariffs becoming a reality, suggest that if and when tariffs are officially enacted, Crude Oil prices will decline greatly.
