28 Jan 2025

Oil prices experienced downward pressure yesterday, as both the market and the wider sector were unable to avoid the sell-off observed in equity markets, according to ING's commodity analysts Warren Patterson and Ewa Manthey.

Middle East market continues to show relative strength

1. The announcement of tariffs is unlikely to improve market sentiment, particularly in light of recent reports suggesting that President Trump is poised to impose tariffs on key imports, specifically targeting steel, aluminum, and copper. This move is expected to create uncertainty among investors and businesses, as tariffs can lead to increased costs for manufacturers and consumers alike. Additionally, the Financial Times has reported that Treasury Secretary Scott Bessent is advocating for a universal import tariff set at 2.5%. This proposed tariff is not intended to remain static; rather, it is expected to increase gradually over time, which could further exacerbate concerns about inflation and supply chain disruptions. As a result, market participants may react negatively to these developments, fearing that such measures could stifle economic growth and lead to retaliatory actions from trading partners.

2. In spite of the recent downturn in the oil market, the Middle Eastern sector continues to exhibit relative resilience, showcasing its ability to withstand external pressures. Notably, the premium of Middle Eastern crude oil over Brent crude has expanded to over US$2 per barrel, indicating a strong demand for this region's oil. The strengthening of the Middle Eastern market has been particularly evident since late last year, but it has gained significant momentum following the imposition of U.S. sanctions on Russia. These sanctions have disrupted the flow of Russian oil, prompting buyers who previously relied on Russian supplies to seek alternative sources. As a result, Middle Eastern producers have been able to capitalize on this shift, solidifying their position in the global oil market and potentially increasing their market share as they cater to the needs of buyers looking for reliable and accessible oil supplies.

3. Interestingly, even with sanctions affecting a significant portion of the Russian shadow fleet, which consists of tankers operating outside of regulatory oversight, tanker rates have experienced a decline in recent times. This decline may seem counterintuitive, given the disruptions caused by sanctions and the ongoing geopolitical tensions surrounding Russian oil exports. However, several factors could be contributing to this trend. For one, the overall demand for oil may have softened due to economic uncertainties and fluctuations in global consumption patterns. Additionally, the increase in available tanker capacity, as more vessels enter the market or are reallocated from other routes, could be putting downward pressure on rates. Furthermore, the market may be adjusting to the new realities of oil trade, with buyers and sellers recalibrating their strategies in response to the evolving landscape. As a result, despite the challenges posed by sanctions, the dynamics of the tanker market are shifting, leading to a decrease in rates that