Brent carried higher by relief rally across markets as Trump backs away from sacking Powel. Brent crude rose 1.8% ydy to USD 67.44/b with an intraday high of USD 68.04/b. The gain was driven by a relief rally across markets as it became clear that Trump would not try to force out Powel from his role as chair of the US Fed. US equities rallied more than 2.5% as a result and pulled oil along upwards in relief. The gains continue this morning both in equities and oil with the latter up 1.2% to USD 68.25/b.

Forward oil in euro looks very appealing for consumers. Even after recent oil price gains. A weaker USD and a lower oil price at the same time recently has strongly lifted the appeal for oil purchases by non-US denominated oil consumers. The euro has rallied against the USD. On Monday Brent closed at EUR 57.57/b while the 3yr forward Brent price closed at a nominal EUR 53.95/b when the forward fx rate is applied. But this is nominal three years forward basis. If we also assume that Eurozone inflation will average 2% pa. for the next three years, then the real forward euro price for oil is even lower. The price for Brent crude today is EUR 60.1/b for the front-month while the 36mth contract is EUR 55.1/b when the forward eurusd rate of 1.2 is applied. If we also assume a 2% annual inflation for three years then the real forward price is only EUR 51.9/b. Compare this to the average nominal price of Brent crude from 2015 to 2019, the shale oil boom-years, when Brent crude only averaged USD 58.5/b and EUR 51.3/b. This period was the tragic oil-years when US shale oil companies were chasing volumes rather than profits with many of them going bankrupt as a result. Even after the recent rally in Brent crude oil prices, the forward 36mth price in EUR is still relatively cheap in historical terms and especially so when the 36mth real forward price is taken into account.

The 36mth real forward price for Brent crude in EUR/b is almost down to the ”valley of death” period from 2015 to 2019 when Brent crude nominally averaged USD 58.5/b and EUR 51.3/b. That was the period when US shale oil producers aimed for volume over profits which led many of them to bankruptcy.

Brent crude ticks higher along with positive equity markets. Brent crude has been gradually ticking higher since its recent low close of USD 62.82/b on 8 April. Though 9 April was rather extreme with an intraday low of USD 58.4/b and a close the same day of USD 66.02/b. Brent is rising 1.4% this morning to USD 67.2/b along with higher equity markets in China and US equity futures (+1%). The daily fluctuations in Brent crude oil prices have been quite well aligned with fluctuations in equity prices which again are driven predominantly by the varying perceptions of how the US trade war with the world will progress and what the fallout will be.

Will Trump stay the course through economic pain or not? Will Donald Trump continue head-on, or will he pull back as pain emerges? It is clear that economic pain and damage will follow from what Donald Trump has done so far. That is already priced in. The big question though is whether he will stubbornly carry on or not. This looks like a ”game of chicken” where the question is who will blink first. Donald Trump or Xi Jinping? Will Donald Trump back off as US consumer-pain rockets and US economic activity falters or will he stay the course? Markets are highly conflicted on this as Trump has been extremely mercurial before and can suddenly change course. If he chooses to stay the course, without flinching, then obviously there is more downside to come. The current impression is that Trump is aiming for major changes and is willing to endure pain to achieve them.

Brent crude has taken direction from equity markets (here the US Russel 2000 index in orange) as it is a barometer of how bad the fallout from the tariffs will be on global growth and oil demand growth. The Russel 2000 is as of yesterday.

The Brent crude forward curve is pricing tightness and surplus at the same time. The Brent crude forward curve is currently pricing two things at the same time:

1) Supply/Demand is tight here and now (front-end backwardation)
2) But also, that surplus is coming (contango further out)

If the market is right, i.e. that surplus is coming, that Donald will continue head on with what he is doing, then the forward Brent curve will likely shift to full contango with the front-end of the Brent crude oil curve dipping into the 50ies. The big question is of course whether Donald Trump will carry head on without flinching or not. Staying the course through the coming economic pain.

Current Brent crude oil forward curve and how it could shift to full contango if the market shifts to surplus and stock building.

Brent Crude prices continued their decline heading into the weekend. On Friday, the price fell another USD 4 per barrel, followed by a further USD 3 per barrel drop this morning. This means Brent crude oil prices have crashed by a whopping USD 13 per barrel (-21%) since last Wednesday high, marking a significant decline in just four trading days. As of now, Brent crude is trading at USD 62.8 per barrel, its lowest point since February 2021.

The market has faced a ”quadruple whammy”:

#1: U.S. Tariffs: On Wednesday, the U.S. unveiled its new package of individual tariffs. The market reacted swiftly, as Trump followed through on his promise to rebalance the U.S. trade position with the world. His primary objective is a more balanced trade environment, which, naturally, weakened Brent crude prices. The widespread imposition of strict tariffs is likely to fuel concerns about an economic slowdown, which would weaken global oil demand. This macroeconomic uncertainty, especially regarding tariffs, calls for caution about the pace of demand growth.

#2: OPEC+ hike: Shortly after, OPEC+ announced plans to raise production in May by 41,000 bpd, exceeding earlier expectations with a three-monthly increment. OPEC emphasized that strong market fundamentals and a positive outlook were behind the decision. However, the decision likely stemmed from frustration within the cartel, particularly after months of excess production from Kazakhstan and Iraq. Saudi Arabia’s Energy Minister seemed to have reached his limit, emphasizing that the larger-than-expected May output hike would only be a “prelude” if those countries didn’t improve their performance. From Saudi Arabia’s perspective, this signals: ”All comply, or we will drag down the price.”

#3: China’s retaliation: Last Friday, even though the Chinese market was closed, firm indications came from China on how it plans to handle the U.S. tariffs. China is clearly meeting force with force, imposing 34% tariffs on all U.S. goods. This move raises fears of an economic slowdown due to reduced global trade, which would consequently weaken global oil demand going forward.

#4: Saudi price cuts: At the start of this week, oil prices continued to drop after Saudi Arabia slashed its flagship crude price by the most in over two years. Saudi Arabia reduced the Arab Light OSP by USD 2.3 per barrel for Asia in May, while prices to Europe and the U.S. were also cut.

These four key factors have driven the massive price drop over the last four trading days. The overarching theme is the fear of weaker demand and stronger supply. The escalating trade war has raised concerns about a potential global recession, leading to weaker demand, compounded by the surprisingly large output hike from OPEC+.

That said, it’s worth questioning whether the market is underestimating the risk of a U.S.-Iran conflict this year.

U.S. military mobilization and Iran’s resistance to diplomacy have raised the risk of conflict. Efforts to neutralize the Houthis suggest a buildup toward potential strikes on Iran. The recent Liberation Day episode further underscores that economic fallout is not a constraint for Trump, and markets may be underestimating the threat of war in the Middle East.

With this backdrop, we continue to forecast USD 70 per barrel for this year (2025). For reference, Brent crude averaged USD 75 per barrel in Q1-2025.