OIL FUTURES: Crude dips on profit-taking amid vague Day 1 Trump 2.0 directives

Crude oil futures were lower in midafternoon Asian trade Jan. 21 as anticipated directives from the newly sworn-in 47th US President were pushed back.

At 3:41 pm Singapore time (0741 GMT), the ICE March Brent futures contract was down 38 cents/b (0.47%) from the previous close at $79.77/b, while the NYMEX February light sweet crude contract was down 89 cents/b (1.14%) from the previous close at $76.99/b.

"Trump's election campaign was centered on a foundation of increased oil drilling, tariffs on imports, a ban on illegal immigration and a stance of "no war" ... Oil prices largely dismissed the "war premium" following news of a ceasefire in Gaza," Priyanka Sachdeva, Senior Market Analyst at Phillip Nova said.

Besides the relief surrounding the Israel-Hamas ceasefire, crude oil futures prices also fell on market expectations for an oil production hike.

"Trump's policies are expected to increase US oil production beyond the record levels of 13 million b/d in 2025," Philip Nova's Sachdeva added, pointing to an anticipated supply glut that could further exert downward pressure on crude oil prices.

Supply-side concerns may have seemingly eased, but concerns regarding the fragility of the Israel-Hamas ceasefire deal belie a nagging tension in the market.

"Any missteps in managing the ceasefire could potentially trigger a renewed conflict and a resumption of militia attacks on ships by the Houthis. Markets are still keenly aware of these risks," iFAST Financial Senior Portfolio Manager You Weiren said Jan. 21.

Uncertainty regarding the timeline for Trump's plans for energy markets and imposition of tariffs also remain.

More importantly, "investors need to understand that while drilling more could increase production, it may not result in a significant addition of barrels immediately, especially compared to the immediate tightening of supplies due to sanctions," Phillip Nova's Sachdeva added. Losses in crude oil prices could thus be capped.

Market analysts said it is unlikely US companies will manifest the "drill, baby, drill" mantra at the snap of Trump's fingers.

"Because [oil companies] are ultimately still focused on profitability and capital discipline, rather than political considerations. Higher production could have a negative impact on oil prices and profits, and potentially lead to bankruptcies across the industry if there is indeed a glut. It also requires oil companies to substantially raise their capital expenditures, which is unlikely," iFast Financial's You added.

Regarding further supply-side concerns, recently imposed sanctions on Russian and Iranian oil did not shift the market's expectations on OPEC's reaction -- the market anticipates a wait-and-see approach from the cartel throughout the year, analysts said.

"While the sanctions on both Russia and Iran could result in a tighter oil market and potentially lead OPEC to unwind its production cuts earlier, there's also the demand side to consider, which at this point looks uncertain, particularly with China -- long an important driver of global oil demand -- still facing economic challenges at home," You said.

The US dollar weakened following unclear directives from Trump's inauguration speech late Jan. 20, as investors remained cautious about potential economic policies the Trump administration could implement.

The ICE US Dollar Index was down 0.86% from the previous close at 108.265 as of 0640 GMT Jan. 21. A weaker greenback results in dollar-denominated assets like oil futures becoming less expensive to investors holding foreign currencies, thus boosting demand for these assets -- thereby capping losses in crude oil futures prices.

Dubai crude

Dubai crude swaps and intermonth spreads were mixed in midafternoon Asian trading Jan. 21 from the previous close.

The March Dubai swap was pegged at $78.47/b at 2:00 pm Singapore time (0600 GMT), down by 36 cents/b (0.46%) from the previous Asian market close.

The February-March Dubai swap intermonth spread was pegged at $2.07/b, wider by 7 cents/b over the same period, and the March-April Dubai swap intermonth spread was pegged at $1.23/b, narrower by 13 cents/b over the same period.

The March Brent-Dubai exchange of futures for swaps was pegged at $1.61/b, narrower by 21 cents/b over the same period.