Trump’s Second Term: A Shift in Oil Market Dynamics
As the world adjusts to the new political landscape, Citigroup is forecasting a significant impact on the oil market. With Donald Trump set to begin his second term as US President, the bank predicts a decline in oil prices through 2025, with Brent crude expected to average $60 per barrel.
Trade Tariffs and Oil Supply: A Perfect Storm
The primary driver behind this forecast is the potential implementation of trade tariffs, which could lead to increased oil supply and downward pressure on prices. Furthermore, Trump’s influence on OPEC+, a coalition of oil-producing nations, may prompt the group to reduce production cuts, releasing more oil into the market and exacerbating the downward trend.
A Boost for the Industry
However, Trump’s policies could also bring benefits to the oil industry. Potential tax incentives for capital investment in exploration and production could stimulate growth, while reversing the Biden era’s increases in royalties, costs for minimum bids, and lease rates on Federal lands could reduce operational costs.
Global Economic Growth Implications
But Trump’s policies may have mixed implications for global economic growth. Europe and China, already vulnerable to trade tariffs, may experience negative impacts, which could in turn affect global oil demand growth. Citigroup is predicting a growth rate of 0.9 million barrels per day for next year, but this could be dented by Trump’s policies.
Limited Immediate Impact
Despite the supportive oil and gas agenda, Citigroup believes the immediate impact on physical oil markets will be limited. This was evident in the initial market response, with Brent crude oil futures settling down 0.8% and US West Texas Intermediate crude falling 0.4% following Trump’s reelection.
A Shift in Market Sentiment
The US dollar rallied to its highest level since September 2022, triggering a large sell-off that pushed oil prices down by more than $2 per barrel during early trade. As the market adjusts to the new reality, it remains to be seen how Trump’s policies will shape the oil market in the long term. One thing is certain, however: the dynamics of the oil market are set to change in significant ways.
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