Trump’s victory shakes the oil market: Citi believes it will fall in price by up to 20% | Financial markets

“Bobby, leave the butter for me. We have more oil than any country in the world. Bigger than Saudi Arabia. More than Russia. Bobby, stay away from liquid gold. This message, delivered jokingly by Donald Trump in his election victory speech to Robert F. Kennedy Jr., was about being one of the strong men of his government, but also an environmental lawyer for decades – a period during which he Even lawsuits filed against polluting companies shed light on Republican intentions regarding fossil fuel use.

His return to the White House this Wednesday has turned stock markets, currencies, bonds and even the outlook for central bank interest rates on their heads. But, curiously, a barrel of oil, although it initially reacted with a fall due to the rapid revaluation of the dollar, later regained lost ground and became one of the assets that underwent the least changes in its price, with small falls. to around $74 in the case of Brent, the benchmark in Europe. However, the country’s oil policy is about to change. The main goal of Trump’s program is to provide the United States with the cheapest energy on the planet. And to achieve this, he proposes, among other things, “to release vast reserves of liquid gold onto public lands in the United States.”

According to Citi analysts, this will lead to a sharp drop in the price of a barrel of oil. “A second Trump term will likely keep prices under pressure in 2025. Our average Brent price forecast is $60 per barrel,” the report said. This would mean a 20% reduction in prices compared to current prices, which they attribute to the effect of tariffs, a possible increase in OPEC+ supply and more favorable taxation for the industry. Trump’s program also blames his predecessor Joe Biden for ending drilling contracts in Alaska’s Arctic National Wildlife Refuge (ANWR), one of the largest oil fields in the United States in which Spanish company Repsol has interests it announced in 2017. made the largest oil discovery in 30 years on American soil in Alaska.

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Among the package of measures he is proposing, Trump plans to speed up drilling permits to boost oil and natural gas production, ease Biden’s “suffocating tax hikes on oil, gas and coal producers” and replenish strategic oil reserves. “To keep pace with a global economy that is more than 80% dependent on fossil fuels, President Trump I’ll drill, baby, I’ll drill(will drill, baby, drill), sums up Trump’s agenda, using a popular slogan designed to encourage continued crude oil production on American soil. “We will see the sale of maritime concessions, we will see pipelines moving much faster, we will see hydraulic fracturing on federal lands and a mindset to lower the cost of energy for consumers,” Dan Eberhart, CEO of oil services company Canary LLC, told Bloomberg.

Market theory is clear: increased oil supply means lower prices, but there are other factors at play. “Europe is a net importer of energy and could benefit from discounts on US oil, although increased production also poses a challenge to Europe’s clean energy transition policies,” says independent analyst Franco Macchiavelli. “In the face of OPEC, this is also a direct threat, since with more crude oil on the market, prices could fall even further, forcing OPEC to cut production to avoid a collapse in its revenues,” he adds.

The larger or smaller amount of that production cut, if it happens, will in principle be key to the direction of prices, although what also matters for international buyers is the evolution of the dollar, the currency in which they pay for oil imports, which has risen sharply since Trump’s victory. against other currencies.

Geopolitical risk

The geopolitical issue will also have an impact: if Trump imposes sanctions on Iran, from which China buys 13% of the crude oil it consumes to develop its nuclear program, the price of crude oil on paper will rise. “Stricter enforcement of sanctions could threaten supplies of just over a million barrels of oil per day,” calculates ING, which views dollar strength as bearish for crude oil and all commodities. Analysts at the Swiss bank UBS believe that Trump’s influence on oil will be ambiguous: on the one hand, these geopolitical risks will push the price up, and in the opposite direction, down, there will be an increase in supply and a drop in claims. on tariffs and a potential ceasefire in Ukraine.

According to Eric Dore, director of economic research at the French management school IESEG, Trump’s efforts to reduce the cost of fuel and electricity in the United States could have a negative impact on Europe. “The gap between energy costs in the US and Europe will continue to widen, to the detriment of European producers. European Union industry will become even less competitive and will lose large market shares. “There is therefore a real risk of accelerated deindustrialization in Europe with significant job losses.”

We also shouldn’t underestimate the potential pass-on effect: seeing environmental regulations loosened, other oil states could follow in the footsteps of the United States, as could developing fossil fuel countries like Nigeria, which in principle would mean lower prices but also more pollution environment. emissions. The International Energy Agency has warned that to achieve net-zero global carbon emissions by 2050, we must stop new exploration.

Donors

During the campaign, Trump received generous donations from the oil industry. The official figure is $75 million, although the real figure, including industry investment funds, small businesses and other stakeholders, is estimated to be much higher. Of course, that’s nowhere near the $1 billion Trump announced during a meeting in August with some of his top executives. There’s a lot of money at stake. An International Monetary Fund study estimates that U.S. fossil fuel companies receive $700 billion in subsidies each year, on top of federal tax breaks and an underestimation of the environmental costs for which they are responsible.

Despite the proliferation of climate agreements aimed at promoting clean energy, US oil production is now at record levels. The average in 2023 was more than 12.9 million barrels per day, up from the previous record of more than 12.3 million barrels in 2019, according to the Energy Information Administration. Meanwhile, Trump is using public messages to his new ally, the most capricious of the Kennedys, to reassure public opinion that all will be well. “Germany tried to go completely green and they almost destroyed their country. They had windmills and the wind stopped for a couple of weeks and that was almost the end of Germany. The only thing you have to do for me, Bobby, is leave what’s under my feet alone. We will make a lot of money and everything will be clean,” he said in another interview during the election campaign.