Offshore workers examine hydrocarbon samples aboard the Chevron Jack/St. Louis. The Marlow deepwater oil platform in the Gulf of Mexico off the coast of Louisiana, United States, on Friday, May 18, 2018.
Luke Schallert | Bloomberg | Getty Images
U.S. oil producers are looking to Donald Trump’s presidency to reduce regulations on crude production, which would mean an increase in oil supplies, leading to lower prices.
But it’s not that simple: Trump, who was declared the winner of the 2024 election on Wednesday, also vowed to impose more sanctions on Iranian and Venezuelan oil, meaning global markets could become more nervous, potentially pushing prices higher.
Meanwhile, the increased likelihood of a trade war under Trump could dampen global economic growth and slow oil demand. Therefore, the outlook for the market’s long-term outlook is decidedly mixed.
Goldman Sachs commodity analysts wrote in a research note on Monday: “Conceptually, the impact of Trump’s possible re-election on oil prices is ambiguous, with some near-term downside risks to Iranian oil supply… leading to upside risks to prices. ” “But oil demand faces medium-term downside risks, so trade tensions may escalate, and global GDP also faces downside risks.”
Trump expressed his enthusiasm for increasing U.S. oil production in a speech at Republican campaign headquarters in Florida on Wednesday, just hours before his victory was confirmed. He mentioned independent candidate Robert F. Kennedy Jr., who he said would be part of his team.
“Bobby, stay away from oil, stay away from liquid gold!” Trump said in a joking tone. “We have more than Saudi Arabia and Russia.” Kennedy was known for his history of environmental activism.
U.S. oil and gas production has hit record highs under the Biden administration, which has gradually changed its approach to the industry despite campaign promises of environmental stewardship.
U.S. Crude Oil Futures – Both West Texas Intermediate Oil and international benchmarks Brent crude oil It is currently trading at $70 to $75 a barrel, below where many oil producers seek to balance costs and budgets amid slowing global oil demand and rising supply.
But Cole Smead, president and chief executive of Smead Capital, said further pushing forward the drilling program and bringing more supply to the market would lead to lower prices, thereby reducing revenue for U.S. producers.
“If the Trump administration opened up federal leasing of oil and gas, federal lands would get 25 percent of the revenue per barrel. You would be hard-pressed to find an oil company that could make money at $52.50 a barrel with the money they have left. At $70 a barrel, “Smeed said in an email. “The only thing that’s going to cause drilling to happen is higher oil prices based on those profits.”
“Drill baby, Drill is going to meet energy vigilantes,” he added. “Now that equity investors in the energy industry know what free cash flow looks like, they won’t give up. They will allow capital spending to build on their carcasses.”
“Clear competitive advantage”
America is The world’s largest oil producer, Its production accounts for 22% of the global total, followed by Saudi Arabia with 11%, according to the Energy Information Administration. The vast majority of U.S. crude oil is consumed domestically, and the country is also the world’s largest oil consumer.
The CEO of French oil giant Total Energies told CNBC over the weekend that whoever wins the presidency should ensure that the United States does not lose its energy advantage.
“Energy has been unleashed in the United States… Oil production has not been this high since the last two or three years,” Patrick Pouyanne told CNBC in Abu Dhabi.
“To me, today, the United States has a clear competitive advantage in energy compared to many other countries in the world,” he said. “So I would be surprised to see whoever is elected lose the competitive edge.”
Many market participants predict crude oil prices will fall as Trump encourages domestic oil production and increases supply. Amrita Sen, founder and research director of London-based Energy Aspects, sees sanctions concerns differently.
“Every hedge fund I talk to is bearish because (Trump) tends to tweet about low oil prices… I actually think the opposite is true,” she said. “There is a lot of sanctioned oil on the market right now, especially Iranian oil.” Sen said that as the Biden administration relaxes sanctions and their enforcement, Iran is currently producing 3.5 million barrels of crude oil per day or more, of which 1.8 million barrels are used. for export.
“It could be a loss of 1 million barrels a day… During the Trump administration, Iran’s exports were only 400,000 barrels a day,” Sen said. “Now I’m not saying oil prices are going to go all the way down because smuggling networks are now likely to Bigger, better, but you could lose a million dollars,” she said, adding that some Venezuelan oil barrels may also be taken off the market.
For Smid, the outlook is pessimistic, as he expects lower prices to leave many producers – especially those with higher production costs – in a less than ideal situation.
“The price of goods produced is the primary factor in U.S. policy,” he said. “If you’re not a low-cost producer, you should be scared.”
