“Leave the oil to me, we have more oil and gas than any other country in the world, including Saudi Arabia and Russia, and we are going to take advantage of it,” Donald Trump said after his victory. Although this statement is not true, since the proven crude oil reserves of Saudi Arabia and Russia are much larger than those of the United States, yes it is a clear declaration of intent. Trump is going to use all his political power to make the US (it is the largest crude oil producer in the world although it does not have the largest reserves) increase the pumping of crude oil and gas, which, ceteris paribuswill increase global supply and could reduce oil prices. The other leg of Trump’s promise is to cut the price of energy in half in just 12 months.
Oil futures register falls of more than 1.5% in the market. There are two factors (related to each other) that are causing this decline after several increases in crude oil. Donald Trump’s victory in the US elections is strengthening the dollarwhich puts some downward pressure on crude oil, which is denominated in this currency (the more ‘expensive’ the dollar is, the more expensive crude oil is for the rest of the countries in relative terms), on the other hand, the promises Trump’s move to liberalize as much as possible the drilling, exploration and extraction of crude oil on US federal soil generates the medium-term expectation that the US will continue flooding the world with its oil as long as its proven reserves hold. Now, the US produces 13.2 million barrels every day, four million more than Saudi Arabia or Russia. With Donald Trump at the helm of the White House, this number could continue to increase.
Brent, the reference in Europe, stands at 74 dollars per barrel, while West Texas, the reference in the US, falls to the area of 70.8 dollars. What is happening in the oil market? The price of oil is influenced by various factors, including political decisions and geopolitical events.. The presidential election in the United States could have a significant impact on energy markets. For example, a victory for Donald Trump will be favorable for the US oil industry due to its support for fossil fuels. Trump will pave the way for US oil companies, allowing them to drill on federal land in complete safety, which will provide some certainty and increase investment by American oil companies.
It is important to consider that an administration’s energy policies can take time to implement and that other factors, such as global demand, OPEC+ decisions and global economic conditions, also play a role. a crucial role in determining oil prices. Therefore, although a change in the US administration can influence the energy market, it is not the only determining factor in the evolution of oil prices. So, today’s movement is anecdotal, the important thing about Trump’s victory is the impact that his policies will have on the US crude oil industry in the medium term.
From the Reuters agency they explain that Trump’s victory The long-term could be bearish for oil, as Trump’s policies will be favorable for the US oil and gas industry, while trade protectionism may result in weaker demand, according to analysts consulted by the agency. .
Trump, the friend of oil
Trump has always stood out for supporting the traditional energy sector, urging companies to drill and eliminating administrative and fiscal barriers to facilitate their operations. Their continuous demonstrations delegitimizing the fight against climate change have also represented support for the traditional activity of fossil fuel corporations. Recurrently, the former president has used the slogan that Republicans have made popular since 2008: “Drill, baby, drill (drill, honey, drill)” and his phrases still resonate, such as the one tweeted in April 2020, with the outbreak of covid shocking the West: “We will never let the great US oil and gas industry fall.” Along those lines , Trump began even before the primaries to court important oil ‘barons’, in more prosaic terms, potential donors to his campaign.
Quite the opposite of some Democrats who during Biden’s term have had serious clashes with the oil companies. One of the most notorious was in June 2022, when the president attacked the giant ExxonMobil for not having produced more gasoline with fuel prices impacting the pockets of Americans. “Exxon made more money than God this year” He said, defending that the taxes paid by oil companies be increased after a few months with profits ‘fallen from the sky’ skyrocketing after Russia invaded Ukraine and global energy markets became tense.
Based on these demonstrations, it seems that a return of Trump will mean a new ‘spring’ for the sector. However, what has happened since the pandemic means that oil production can hardly increase much more. This is the opinion of Ed Crooks, vice president for the Americas at the prominent energy consultancy Wood Mackenzie, in a report this month in which he points out that “the powers of a US president to affect oil and gas production in one sense are often overestimated.” or another”. Their analysis suggests that, on the contrary, it is feasible that a Trump return will encourage domestic demand, raising prices.
Trump’s campaign comments, like he would like to be “dictator for a day” to address two issues, “that of drilling and that of closing the border,” they point to the use of executive measures and regulatory changes to lighten the regulatory burden on oil and gas companies. The Environmental Protection Agency announced new rules late last year for reduce emissions of oil and gas operations, including a ban on routine flaring in new wells, requirements for extensive monitoring of methane leaks, and new standards for equipment such as controllers, pumps, and storage tanks. The Trump Administration can be expected to eliminate all of these provisions.
Other climate-focused policy initiatives would also come under pressure. The Securities and Exchange Commission (SEC) has been working on final versions of its new rules on climate-related disclosures, including emissions informationwhose publication is scheduled for this year. The SEC is an independent agency, but a President Trump could overturn the current majority of Democratic appointees and block those rules, Crooks notes.
On some issues, continues the Wood Mackenzie analyst, the political pendulum has been swinging from one side to the other with each change of administration. One of the clearest examples was seen with the Keystone XL pipelineonce planned to transport crude oil from the Canadian province of Alberta to US refineries. In 2015, Democratic President Barack Obama stopped the initiative. In 2017, Trump authorized it again. A few weeks after arriving at the White House, at the beginning of 2021, Biden gave the ‘final coup de grâce’ to the project.
Explore and drill for more oil
He federal land and water lease for oil and gas exploitation is another area that would change, Crooks pointed out. The America First Policy Institute, a think-tank where several former officials from the first Trump Administration work, says the leasing restrictions under Biden represent a “war on American energy.” The current Administration has slowed down the pace of land lease sales and has imposed new restrictions on oil and gas exploitation in Alaskaincluding the cancellation of leases already issued. In the Gulf of Mexico, the administration has proposed the smallest possible lease sale program consistent with its offshore wind development goals, under the terms of the Inflation Reduction Act of 2022.
A change in approach to regulations and leasing would undoubtedly be welcomed by many – although not all – in the US oil and gas industry and could squeeze a little more production, Crooks develops. But crude and condensate production in the 48 contiguous states (excluding Alaska, Hawaii and other island territories) has increased by about two million barrels a day during the Biden Administration, he counters: “If federal policy has slowed growth, it has not been very effective. Nearly half of that increase has come from New Mexico, where most of the harvesting is on federal lands.
Despite everything, the limited margin that the US has to increase the supply of crude oil limits the impact of Trump’s policies on the price of ‘black gold’. It is true that “the business of shale oil gradually improves its productivity and manages to offset cost inflation thanks to consolidation, scale and technological progress…however, we believe that the scenario of a Trump landslide victory has marginal effects on the oil market. However, there is great uncertainty about how such a US presidency would influence oil policy outside of North America and, in particular, in the Middle East,” Julius Baer experts say in a recently published note.
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