U.S. President Donald Trump has launched his second term with a swift and aggressive overhaul of the federal government. His administration has rapidly dismissed long-time civil servants, introduced a controversial buyout program, fired federal prosecutors handling criminal cases against him, and even attempted to shut down the foreign aid agency, USAID.
This strategy reflects a tactic introduced by Steve Bannon, former White House strategist, called “flooding the zone.” The aim is to overwhelm politicians and the media with a barrage of announcements, making it impossible to respond to everything. Commodity analysts at Standard Chartered have observed that oil markets are showing signs of confusion, reacting to the whirlwind of policy shifts from the Trump administration. As a result, many energy traders are cutting back on their risk exposure.
Standard Chartered noted that the oil market’s current disarray is evident in low volatility levels. On February 17, the 30-day realized annualized Brent volatility fell to 16.5%, marking a 6-percentage point drop compared to the previous week. This is just 1.5 percentage points above a 15-month low. Volatility levels in the 35-45% range are considered normal for oil, but recent fluctuations have been in the 15-25% range, which is unusually low. Additionally, oil prices have remained relatively stable with little movement over the past three weeks, especially compared to last year.
According to Standard Chartered, the market has become stagnant, staying within familiar price ranges. For instance, front-month Brent has fluctuated around $75.10 per barrel on 11 of the last 12 trading days. Speculative positioning has also shifted toward a neutral stance, with Standard Chartered’s crude oil money-manager positioning index dropping to +16.7, the lowest level for the year. The analysts suggest that many traders have shifted focus from trading fixed prices to trading on basisspreads and time spreads since Trump’s inauguration.
EU Gas Inventory Draws Remain High Amid Uncertainty
In the European Union, gas inventory withdrawals have remained high. Over the past 70 days, daily withdrawals have outpaced last year’s levels on 60 occasions. Gas Infrastructure Europe (GIE) reported that as of February 16, inventories stood at 51.76 billion cubic meters (bcm), a week-on-week draw of 5.19 bcm, which is significantly higher than the five-year average of 3.48 bcm. Standard Chartered forecasts that if the current rate continues, Europe will end the withdrawal season with just 37.5 bcm in storage. However, they predict that inventories will reach 40 bcm, leaving 65 bcm to be added by November 1 to meet the EU Commission’s target of 90% storage capacity.
European natural gas futures remain volatile, with prices hovering around €49 per megawatt-hour. Traders are closely monitoring the need to rebuild storage ahead of the winter season. Last week, Germany, France, and Italy proposed easing EU gas storage requirements to help stabilize the market. According to current European Commission regulations, all EU nations are required to refill their storage to 90% capacity by November, with interim targets set for February, May, July, and September. As of now, EU gas storage is less than 45% full, making it difficult to meet the November deadline. This is a significant drop from last year’s 67% and the 10-year average of 51%.
The continent’s seasonal gas draw has been higher this winter, driven by colder temperatures, reduced wind power generation, and the cessation of Russian gas imports via Ukraine.
U.S. LNG Exports Remain Strong Despite Tariff Challenges
On the other side of the globe, LNG flows from the U.S. to both Europe and Asia are expected to remain high. Despite recent China tariffs on U.S. LNG, Standard Chartered predicts that Europe’s demand for U.S. LNG will stay strong, preventing significant disruptions. These tariffs are likely to dramatically reduce spot LNG cargoes to China, though some long-term contracts may still continue, depending on the terms of re-export clauses.
The analysts warn that the real risk from the tariffs lies in the long-term contract economics, particularly for contracts already signed for at least 15 million tonnes per annum (mtpa). However, it is important to note that the U.S. currently supplies less than 6% of China’s LNG imports, while China accounts for just 6% of U.S. LNG exports.
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