After Republican candidate Donald Trump announced his victory in the US presidential elections and his return to the White House again, the situation in global energy markets is changing, as energy sector experts and analysts agreed that Trump's return will lead to an increase in US oil production, which in turn may impose downward pressure on global prices.
Oil prices fell by about two percent on Wednesday after two sessions of gains, amid the rise of the dollar against the backdrop of Republican Donald Trump's tendency to win the US presidential elections and in light of the rise in US crude inventories more than expected.
Brent crude futures fell $1.17, or 1.5% to trade at $74.36 a barrel, while US West Texas Intermediate crude fell $1.11, or 1.5% to $70.88 a barrel.
Latest Oil Prices
WTI Crude $71.91 -0.08 -0.11%
Brent Crude $75.19 -0.34 -0.45%
Murban Crude $74.47 -0.35 -0.47%
Natural Gas $2.751 +0.081 +3.03%
Louisiana Light $73.63 +2.35 +3.30%
Bonny Light $78.62 -2.30 -2.84%
Opec Basket $74.02 +0.38 +0.52%
Mars US $74.75 -1.30 -1.71%
Gasoline $2.038 -0.006 -0.31%
In addition to the rise in the dollar, which casts a shadow over commodity prices, including oil, Trump's presidency may witness the adoption of policies that will increase pressure on the economy of China, the world's largest importer of crude oil, and thus weaken demand, according to independent analyst Tina Teng.
The dollar is set for its biggest daily gain since March 2020 against its major peers as the so-called “Trump trade” kicks in.
A stronger dollar makes dollar-denominated commodities, such as oil, more expensive for holders of other currencies, which in turn undermines demand.
If Trump regains the US presidency, “he is likely to prioritize policies that favor US energy independence, as we saw during his previous administration,” said David Gurbanaz, an oil markets specialist and oil markets analyst at ICI. “This could mean a focus on liberalizing oil and gas production, as well as initiatives to boost GDP.”
Such policies could lead to increased US oil production, which could in turn put downward pressure on global prices by adding supply, Gurbanaz added. “However, any impact on prices will be mitigated by global factors, including demand trends, OPEC+ production strategies and the broader economic environment. If demand remains high, US production could help moderate prices but not significantly reduce them.” On the other hand, if global demand weakens, increased US production could lead to increased supply and greater price volatility.”
Oil production
The oil market specialist and oil market analyst at ICI believes that Trump’s energy policies could affect oil prices by strengthening a pro-oil stance that would boost investor confidence in the US oil industry. “In the short term, this could lead to market speculation about increased supply, which could put some downward pressure on prices.
However, it is important to realize that oil prices are determined by multiple factors beyond US policy alone, with global economic conditions, especially in major consuming countries such as China, playing a significant role, as well as geopolitical events in oil-rich regions.
Moreover, while Trump’s policies may indicate a potential increase in US supply, OPEC+ may respond by adjusting its own production levels to stabilize prices, especially if it feels its market share is threatened.”
If Trump’s policies lead to increased US production, this could prompt a strategic response from other major oil producers, Gurbanaz says. OPEC+ countries, particularly Saudi Arabia and Russia, may consider cutting production to prevent a price collapse and protect their revenues.
These countries are known to manage production levels to stabilize prices in response to external pressures, and rising US output could be one such catalyst.
In addition, Trump’s approach to energy could impact climate policy on the global stage.
The initial reaction to Trump’s US presidential election victory was a slight decline in oil markets, says Victor Katona, head of oil research at Kpler. “Trump has repeatedly pledged to bring peace to the Middle East and end the war between Russia and Ukraine, without mentioning the risks of escalation with Iran or China,” Katona adds.
“This relatively conciliatory tone may suggest that Trump’s proposed hardline stance on Iran may not be an immediate priority for him, and even if it gradually becomes his policy, it will take some time under the full pressure of sanctions,” Katona adds.
The lack of a geopolitical risk premium only exacerbates the OPEC+ dilemma, says Klapper's head of oil research. If prices fall further, "let's say Brent is near $72-73 a barrel, the idea of bringing supply back to 2025 through voluntary production cuts is not a viable option on the table right now," he says.
A stronger US dollar is negative for oil, Arne Lohmann Rasmussen, senior analyst and head of research at Global Risk Management, told CNN Business. "On the other hand, stronger US growth is positive for oil demand, although higher tariffs are a risk."
“The ‘drill, baby, drill’ policy will be negative for oil prices, but it is likely to have a limited impact on US oil production going forward, so we estimate that speculative investors will avoid oil today and instead focus on other assets that benefit more clearly from Trump as a new president with control of Congress, where the speculative ‘short oil trade’ could gain momentum today,” Rasmussen added.
The result could boost the geopolitical value of oil, says the senior analyst and head of research at Global Risk Management, “as Trump is less critical of Israel than Biden and Harris, and on the other hand, it could prevent Iran from retaliating.”
Rasmussen sees the slight drop in oil prices from around $75.50 before the first signs of Trump’s victory to $74.60 now as “a modest move, and there could be more downside today, but we expect the market to quickly return to focus on fundamentals in the oil market, such as OPEC+ policies and Chinese and US demand for oil.”
Rasmussen says that we should see strong support for Brent crude at $72, “as we still see Brent moving towards $80 through 2025, based on the assumption that OPEC+ will not increase oil supplies to the market and that the global economy is performing better than many expect.”
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