How Trump’s Withdrawal from Syria Could Drag on Oil

On October 6, in a surprise move, President Donald Trump decided to withdraw all US troops from northern Syria. The US government had previously deployed forces in Syria to fight against ISIL (Islamic State of Iraq and the Levant).

In a note, the White House said, “Turkey will soon be moving forward with its long-planned operation into Northern Syria.” However, house speaker Nancy Pelosi called the decision “reckless and misguided.”

How Trump’s Withdrawal from Syria Could Drag on Oil

Trump eases oil’s geopolitical risk

Brett McGurk, the former special presidential envoy charged with tackling the ISIL threat, said, “Trump tonight after one call with a foreign leader provided a gift to Russia, Iran, and ISIS.” He was referring to Trump’s call with Turkey’s top leader. According to him, withdrawing US forces could give Syrian President Bashar al-Assad the upper hand to control the region. Iran and Russia have backed Bashar al-Assad’s government. The US has accused him of war crimes.

Trump’s decision to withdraw forces from Syria will ease the tension between the US and Iran. Moreover, Yemen’s Houthis have started peace negotiations with Saudi Arabia. All these developments could ease the geopolitical risk in the Middle East. Chances have increased of possible US-Iran talks to end sanctions. 

How will it affect oil prices?

On October 7, US crude oil active futures fell 0.1% and settled at $52.75 per barrel. On the same day, the United States Oil Fund LP (USO) was unchanged. In the trailing week, active crude oil futures fell 2.4%, leading to a decline of 5.7% in upstream stocks such as Chesapeake Energy (CHK).

On October 7, RBC Capital Markets’ Helima Croft told CNBC that economic concerns were weighing more on oil prices. For instance, after a 5.7 MMbpd (million barrels per day) supply outage, oil prices declined. In the current scenario, if Trump ends sanctions on Iran, oil prices could plunge. Even with the start of US-Iran talks, prices could tumble. CHK has a net debt-to-EBITDA ratio of 3.2x and could be in trouble if oil prices break below the $50 level. 

API inventory data

Later today, the API (American Petroleum Institute) will report its crude oil inventory data for the week that ended on October 4. Based on a Reuters poll estimate, it could report a rise of 2.576 MMbbls (million barrels). Any rise in the API inventory could drag on oil prices. Last week, the API reported a decline of 5.9 MMbbls in oil inventories. A Reuters poll suggested a rise of 1.7 MMbbls.