Crude oil forecast: Increased drilling under Trump could weigh on prices

The immediate response in the commodities space to the Republican’s clean sweep victory has been a bearish one - especially for industrial metals. Copper and silver fell over 4% each, tracking weaker iron ore prices, while gold was off by around 3%. Crude prices fell too but came sharply off their earlier lows. In light of Trump’s clean sweep, the crude oil forecast has turned modestly bearish as I will explain in this short article.

Crude oil forecast undermined by Trump victory

While campaigning, Trump promised to lift restrictions on domestic fossil-fuel production, and said he plans a wide range of tariffs on imported goods. Crude oil could come under pressure because of potential for increased drilling activity could lead to more US oil production. Today, the downside has been limited so far because of the risk rally with US indices hitting record levels. But oil is more likely to test recent lows I would say, and the trigger would be if WTI breaks Friday’s low around $69.29. As well as increased drilling in the U.S., and a stronger U.S. dollar, tariffs could hurt demand in key markets such as China.

If commodities remain under pressure given Trump’s promise of tariffs on imported goods, especially from China, this should also be a factor that crude oil traders will take into account. Industrial metals could be a particular weak spot and we have seen copper and iron ore being hurt sharply today. The stronger USD and yields are also hurting gold as the opportunity cost of holding the non-interest-bearing asset climb.

There is now the risk that the FOMC may slow its rate-cutting pace. This is because inflation may re-ignite with Trump’s policies. If interest rates remain high, this could ultimately weigh on demand for oil.

Dollar rally may also hold back oil

Today’s big rally on the dollar is an additional factor hurting commodities, as well as the threat of tariffs hitting demand. With the Republicans having also taken a majority in the Senate, Trump has been given a powerful mandate and platform to implement his policies, including tax cuts. This could boost inflationary pressures and result in a slower pace of rate cuts from the Fed relative to other central banks. It could even prevent the Fed from cutting rates significantly in 2025 should the disinflation process stops and reverses. This is why the US dollar has rallied as we had expected. A strong dollar could keep crude oil under pressure as it will make it costlier for foreign buyers.

WTI technical analysis and levels to watch

Source: TradingView.com

WTI was testing resistance around $72.50 at the time of writing, after managing to recover from its earlier lows. As mentioned, a potential break in the coming days below Friday’s low of $69.29 could trigger a potential drop towards $67.00 if not lower. On the upside, the next potential resistance comes in around $74.30, followed by $76.00 and then the 200-dy average at $77.00.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the company you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.