- President Trump’s push to cut Iran’s oil exports to zero has fueled bullish sentiment in oil markets.
- Despite Trump’s calls for increased oil supply, OPEC has not signaled any intention to boost production.
- If demand rises with greater strength than expected in 2025, the oil price rally could be even more significant.
When President Donald Trump came into office, oil prices jumped. The immediate reason was simple enough: Trump likes a hardline approach to countries he sees as enemies, and that means Iran and sanctions on its oil exports. But there’s another factor at play, too: U.S. shale.
Energy market analyst John Kemp wrote this week that it was time for a new cycle in crude oil, citing both sanction action by the Trump administration against not just Iran but Russia and Venezuela, too, and also shale oil production growth. It is that second factor that has yet to get through to most traders, who are currently still going on momentum and IEA monthly reports about demand, even as these get debunked by later IEA monthly reports.
Kemp cited Energy Information Administration figures that showed growth in U.S. crude oil production and slowed down substantially last year, from some 900,000 bpd in 2023 to just 300,000 bpd over January to November 2024. This was not unexpected. In fact, the EIA’s monthly reports pointed to that slowdown, and energy industry executives hinted at that direction, too. Yet it takes a while before the realities on the ground reach algo trading offices and register with the traders—this time is coming.
There’s more, too. In November, the EIA said in its latest Petroleum Supply Monthly report that oil production actually declined by 122,000 barrels daily. In fairness, this was a decline from a monthly record of 13.314 million bpd registered in October, but that record pace appeared unsustainable at that point. What’s more, however, product supplied in November fell by 775,000 bpd for crude oil in November, suggesting weak demand growth, which in turn would suggest oil companies really have no incentive to ramp up production.
Enter Trump’s Iran policies. The U.S. president said earlier this week he intends to try and reduce Iran’s crude oil exports to zero once again with a maximum pressure campaign. That was naturally bullish for prices, although a twist followed soon enough. Both Trump and Tehran signaled they were willing to talk before the sanction push began. Trump made it clear that his priority is preventing Iran from becoming a nuclear country but said he was open to a deal.
In response, a spokesman for the Iranian government said, “Our foreign policy has always been driven by the following principles: dignity for our country and people, wisdom … and interest. This applies to our relations with other countries,” adding that “Wisdom means thoroughly looking at the inside-out of issues and having a correct understanding of them.” While not a direct statement of readiness to talk, the comments certainly lack aggressive posturing.
So, that should be bearish for oil under normal circumstances. However, if we also add to the cast of characters OPEC’s recent implicit refusal to respond to Trump’s urge for more crude oil supply and combine it with the latest trends in U.S. oil production, the picture that emerged is rather bullish—hence Kemp’s projection of the start of the next crude oil cycle.
“Notwithstanding pro-drilling rhetoric from the White House, growth is unlikely to accelerate until prices climb sustainably above $81 (50th percentile) or even $92 (60th percentile),” Kemp wrote, to add that “In the meantime, relatively low prices will tempt the Trump administration’s foreign-policy team to toughen sanctions on other producers, and call on U.S. shale drillers and Saudi Arabia to fill the gap.”
It is already clear that neither of these groups will respond the way Trump wants them to respond. This means higher prices are on their way for the simplest reason of all: declining supply and stable demand. If demand surprises with greater strength than expected, then the rally will be even more pronounced.
