Oil prices fall on Trump’s Russia sanctions easing signals

January 20, 2025 (MLN): Oil prices fell on Monday as expectations that U.S. President-elect Donald Trump would ease curbs on Russia's energy sector in exchange for a deal to end the Ukraine war offset concerns about supply disruptions from harsher sanctions.

Brent crude futures decreased by $0.12, or 0.15%, to $80.67 per barrel.

West Texas Intermediate (WTI) crude futures fell by $0.01, or 0.01%, to $77.38 per barrel by [10:30 am] PST. 

Trump, who will be inaugurated later on Monday, is widely expected to make a flurry of policy announcements in the first hours of his second term.

These include ending the moratorium on U.S. liquefied natural gas export licenses, as part of a broader strategy to strengthen the economy, as Reuters reported.

"There is a fair amount of uncertainty across markets coming into this week, given the inauguration of President Trump," ING analysts said in a note.

"The raft of executive orders he reportedly is planning to sign adds to the uncertainty."

"This combined with it being a U.S. holiday today, means that some market participants may have decided to take some risk off the table."

Both contracts gained more than 1% last week in their fourth successive weekly ascent after the Biden administration sanctioned more than 100 tankers and two Russian oil producers.

That led to a scramble by top buyers China and India for prompt oil cargo and a rush for ship supply as dealers of Russian and Iranian oil sought unsanctioned tankers to ferry their load.

While the new sanctions could impact the supply of nearly 1 million barrels per day of oil from Russia, recent price gains could be short-lived depending on Trump's action, ANZ analysts said in a client note.

Trump has promised to help end the Russia-Ukraine war quickly, which could involve relaxing some curbs to enable an accord, they said.

Analyst Tim Evans said the new sanctions are seen curtailing supply, at least in the near term.

"Higher tanker rates on unencumbered vessels and a widening backwardation in crude oil calendar spreads have been among the notable ripple effects," he said in his newsletter, Evans on Energy.

"These developments are reinforcing the concern over supplies."

Backwardation refers to prompt prices being higher than those in future months, indicating tight supply.

The prompt Brent monthly spread widened in backwardation by 5 cents to $1.27 a barrel on Monday.

The WTI spread was at 63 cents a barrel, up 14 cents.

Easing tension in the Middle East also kept a lid on oil prices.

Hamas and Israel exchanged hostages and prisoners on Sunday marking the first day of a ceasefire after 15 months of war.

Separately, investors are watching out for the impact of a cold snap in Texas and New Mexico which may affect U.S. oil production, analysts at ANZ and ING said.

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