Trump says oil prices will drop like a rock. It’ll be more like a feather

Trump’s Oil Price Prediction Faces Market Skepticism

Trump says oil prices will drop – President Donald Trump has long promised that resolving the Iran conflict would bring immediate relief to American consumers, with energy prices plummeting rapidly once the Strait of Hormuz reopens. However, recent market movements suggest his optimistic outlook may be more complex than he anticipates. While the proposed deal framework is set to be finalized on Friday, the immediate impact on oil prices has already begun, yet analysts argue that the path to substantial declines may take longer than Trump’s “drop like a rock” assurances suggest.

The Agreement and Its Immediate Effects

The deal, which aims to curb Iran’s nuclear ambitions, has already triggered a sharp decline in oil prices. Following its announcement on Sunday, crude oil futures dipped below $85, marking a $25 drop from their recent high. This decline, while notable, has not yet reached the sub-$70 levels that were once considered “normal” before the conflict escalated. Trump, known for his bold forecasts, has repeatedly claimed that prices will fall dramatically once the agreement is signed and the strait is fully operational. Yet, the market’s response to the agreement’s framework reveals a more cautious perspective.

Market Realities Challenge Trump’s Optimism

Despite the front-month oil prices falling significantly, futures contracts for the coming year show minimal movement. This suggests that traders are not convinced by Trump’s vision of an immediate and steep decline. Dan Pickering, founder and chief investment officer at Pickering Energy Partners, noted that the concept of “normal” is subjective. He stated,

“We’ll figure out what the new normal is, but it isn’t going to be $2.85 gasoline.”

The market’s reluctance to fully embrace Trump’s prediction highlights the practical hurdles that lie ahead.

The Strait of Hormuz: A Strategic Bottleneck

The Strait of Hormuz, a narrow waterway through which nearly 20% of the world’s oil supply passes, has become a focal point of geopolitical tension. While the agreement’s signing on Friday is expected to ease these tensions, the strait’s condition remains a critical factor. Iran has laid mines in the area, reducing the number of viable routes for oil tankers. This creates a bottleneck that could delay the return of normal oil flow. Jakob Larsen, safety and security officer at BIMCO, emphasized that vessels must navigate these constrained channels with extreme care to avoid collisions or groundings. The process of clearing the mines, which requires meticulous deactivation, could take several weeks—far longer than the timeline Trump envisions.

Delays in Reopening the Strait

Although the strait’s reopening is scheduled for Friday, the presence of mines complicates this process. The U.S. Navy, equipped with advanced minesweeping technology, will need to systematically identify and neutralize these threats. This painstaking effort, combined with the need to ensure safe passage for commercial vessels, could push the timeline for full operational recovery beyond initial expectations. Vikas Dwivedi, a global oil and gas strategist at Macquarie Group, pointed out that the number of ships ready to transport oil post-reopening is currently lower than usual. Only several dozen vessels are positioned nearby, compared to the typical 100 that wait for fill-up calls. While this number is expected to rise significantly once the strait is clear, the process may take up to 30 days to stabilize, according to Dwivedi.

The Path to Stability: A Two-Month Timeline?

Even with the strait cleared, the market remains wary of immediate price stabilization. Niels Rasmussen, chief shipping market analyst at BIMCO, estimated that it could take around two months for the region to return to “normal” operations. This timeline, he argued, assumes a lasting peace deal and no further disruptions. However, Kieran Tompkins, a senior commodities economist, described this as an “optimistic” projection, citing the volatility of regional tensions. Iran’s threats to attack ships transiting the strait have already driven up maritime insurance rates, making it riskier for companies to commit to long-term operations.

Geopolitical Risks and Market Uncertainty

The potential for renewed conflict looms large. Iran has reiterated its threats against vessels attempting to pass through the strait, creating an environment of uncertainty for the global oil market. This has led to hesitation among shipowners and financiers, who are now evaluating whether the ceasefire will hold. Larsen, echoing this sentiment, said,

“Shipowners will not go ahead in significant numbers without a credible and stable ceasefire backed by both sides of the conflict.”

The market’s cautious behavior underscores the fact that even with the agreement in place, the path to price normalization is fraught with challenges.

The Role of Supply and Demand Dynamics

While the Strait of Hormuz is a key factor, broader supply and demand trends also play a role in shaping oil prices. The recent decline in crude oil futures reflects a combination of increased supply from the U.S. and reduced demand due to economic slowdowns in key markets. However, the market’s long-term outlook remains cautious. Analysts warn that the global economy’s reliance on oil, coupled with geopolitical risks, means prices may not stabilize quickly. The agreement’s success in curbing Iran’s nuclear program is a positive development, but its impact on oil prices hinges on the strait’s full reopening and sustained calm in the region.

What the Market Sees as “Normal”

Trump’s promise of a dramatic price drop has created a contrast with the market’s more measured expectations. While the president’s rhetoric suggests a swift return to pre-war price levels, the market’s long-term contracts indicate a different reality. The price of Brent crude, currently trading near $85, is still $15 away from the sub-$70 range that Trump claims is “normal.” This gap highlights the difference between political optimism and economic reality. Even if the strait is cleared, the time required to reestablish regular shipping schedules and rebuild trust in the region’s stability could delay the promised price recovery.

The Broader Implications for Energy Markets

The situation in the Strait of Hormuz serves as a microcosm of the challenges facing the global energy market. While temporary disruptions can lead to immediate price adjustments, sustained changes require deeper structural shifts. Trump’s focus on rapid price declines ignores the nuanced interplay between supply constraints, demand fluctuations, and geopolitical uncertainty. The market’s current trajectory, with prices falling but not yet reaching Trump’s target, suggests that the path to normalization is neither simple nor swift. As the deal framework is finalized and the strait’s reopening is imminent, the energy sector will be closely watching for signs of lasting stability—or further volatility.

In conclusion, Trump’s “drop like a rock” prediction, while ambitious, faces headwinds from both market dynamics and logistical challenges. The Strait of Hormuz’s condition, the time required to clear mines, and the lingering risks of renewed conflict all contribute to a more gradual decline in prices. As the agreement moves forward, the