Trump could deliver lower oil prices but ‘mixed stories’ for oil and gas stocks

For starters, analysts anticipate that Trump could deliver lower prices for crude oil by helping to boost global supply. That would be even as U.S. oil production has touched its highest level on record under Biden, which has helped keep a lid on prices.

A second Trump term “would be bearish overall” for oil prices, said Tom Kloza, global head of energy analysis at OPIS, meaning it would be marked by lower prices. The drivers for that, he said, would include increased output from Saudi Arabia, which leads the Organization of the Petroleum Exporting Countries, and from Russia, as a Trump administration would probably be friendlier toward those two countries.

“You probably would look at the Saudis using some spare capacity, and some sort of rapprochement between Europe and the United States and Russia, and just generally more more drilling in the U.S. and elsewhere,” the OPIS expert said. OPIS is an energy-data and analytics provider that is part of News Corp’s Dow Jones, the publisher of MarketWatch.

In the “very short term,” another Trump presidency could be bullish for oil prices, Kloza reckons, because Trump would take a tougher stance and potentially impose new sanctions on Iran and Venezuela, which might mean losing “some Iranian barrels, … some Venezuelan barrels.”

At the same time, Kloza stressed that U.S. presidents don’t tend to drive the price of fossil fuels as much as other factors do, even though they get plenty of blame for any pain that Americans feel at the gasoline pump
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Those factors include geopolitical events, technological gains and supply and demand in the rest of the world, he said.

Citi analysts led by Eric Lee also have predicted that should Trump win in November, the “net impact looks bearish for oil.” In addition to the potential for increased supply from OPEC+ countries or higher flows due to an earlier resolution of the Russia-Ukraine war, there could be trade fights that weigh on global demand for crude, according to the Citi team. During his 2024 campaign, Trump has proposed a 10% tariff on all imports plus a 60% tariff on all Chinese imports.

“Renewed trade tensions would further hit already weak global trade, hitting trucking and thus diesel demand,” the bank’s analysts said in a note this month.

“A second Trump term would raise our conviction in our $60 oil call for 2025,” they wrote. West Texas Intermediate crude
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recently has traded at around $77 a barrel, while Brent crude
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the global benchmark, has been trading at around $81 a barrel.

What about delivering on GOP calls to “drill, baby, drill?” The Citi team said a new Trump administration’s impact on domestic production of oil and natural gas
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“should be limited, even if the rhetoric is likely to be fiercely pro-fossil fuel.” They emphasized that domestic production trends in recent administrations have been “chiefly driven by technological improvements, costs of production and oil prices.”

‘Mixed stories’ for companies

During the 2020 race between Biden and Trump, ClearView Energy Partners predicted that a Biden win would provide a “sell the company, buy the commodity” kind of trade, said Kevin Book, the head of research and a managing director at ClearView, an independent provider of research and analysis. “Companies producing here would have higher nonmaintenance capital expenditures, but the implications for a tighter market, because of less production, would have been better for the commodity,” he said.

“That hasn’t entirely won out, because the regulation hasn’t been quite as tight as we initially anticipated, and production has actually been fairly prolific in spite of the administration,” Book told MarketWatch. Even so, the reverse of that trade “probably still holds true now.” In other words, traders may want to sell the commodity while buying oil companies if they anticipate a Trump victory in a tight White House race.

However, Book cautioned that “there’s mixed stories here” for oil and gas companies. He said he isn’t sure there actually would be a big surge in crude production under Trump, but he would “rather be in the drill-bit business than in the barrel business if the U.S. is really going to add a significant volume under Trump.”

There would be “some appreciation” in shares of companies that are “selling into the production of oil and gas — if you’re selling services
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for example, or you’re in some sort of ancillary business,” he said.

Where are the downsides? Biden has backed tougher regulations on methane emissions, and that actually can be “enabling” for U.S. companies seeking access to regulated overseas markets such as the European Union, according to Book.

“If there’s real talk about rescinding methane regulation — there are several different avenues and different areas of it — that could have impacts for exports,” he said.

In addition, the Biden climate law known as the Inflation Reduction Act has provided tax credits that are “accretive” to “companies that may have once called themselves oil and gas companies that are now calling themselves energy companies,” Book said. A second Trump administration would likely work on scrapping some of those IRA credits, although a major repeal could be hard to pull off.

“So there could be some weight on those stocks just on anticipation. It’s not clear that those credits would go way,” he said.

Overall, the Biden administration’s position on fossil fuels has been “nuanced,” according to Book.

“They have, I think, accepted and acknowledged the necessity of keeping supply resilient and robust, given current reliance on fossil fuels,” he said.

That’s after the Biden team started out focused on “accelerating the transition away from fossil fuels — looking for ways to do it that may or may not have actually been supported by the market,” Book said. They’re “reverting back a little bit” to that approach ahead of November’s 2024 election, with last month’s decision to pause new approvals for liquefied natural gas shipments standing out as an example of that, he added.

‘Energy will be on the ballot’

Climate activists and environmentalists describe the Biden administration’s tacking from one side to another in a different way.

“From approving the Willow Project to pushing forward the Mountain Valley Pipeline, this administration has been an ally to the industry, up until this new pause on [liquified natural gas] exports,” said Allie Rosenbluth, U.S. program co-manager at Oil Change International, a group that aims to end usage of fossil fuels.

“It’s clear that Biden understands that his re-election is in the hands of young and climate voters, who have seen the hypocrisy — where Biden is talking about climate action at one point and also approving the root causes of the climate crisis,” she said.

When Trump was president, Rosenbluth said, there was “a lot less space to be on offense,” and so under a second Trump administration, her group would aim to “play defense and minimize the harm of the industry in communities across the country.”

Meanwhile, the American Petroleum Institute — which lobbies for the U.S. oil and gas industry — has criticized the pause on new approvals for liquified natural gas export facilities. API also has called for greater access to federal lands and waters through onshore and offshore leases and has pushed for reforms for energy permitting.

“Energy will be on the ballot in 2024,” said Dustin Meyer, API’s senior vice president for policy, economics and regulatory affairs. “Our message is the same for both parties, which is to acknowledge, understand and appreciate the reality of global energy demand going forward — and the need to have the supplies required to meet that demand.

“The question is, where’s that supply is going to come from?” Meyer added. “We really believe that it should come from the United States. The industry has made a tremendous amount of progress in establishing us as the world’s largest producer of oil and natural gas. That’s a good thing, but it didn’t happen by accident, and it didn’t happen overnight. It was in part the result of decades of bipartisan support for American energy
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That’s what we want to see restored going forward.”

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