Oil Market Uncertainty Looms as Trump’s Return Raises Concerns
The oil market is bracing for a potential surge in US oil output with Donald Trump’s return to the White House, sparking concerns among OPEC+ delegates. This increased production would further erode OPEC+’s market share and hinder efforts to support prices.
A History of Underestimation
OPEC has consistently underestimated US output gains since the start of the shale oil boom, which has propelled the United States to become the world’s top oil producer, accounting for a fifth of global supply.
Deregulation and Environmental Policies
Trump’s transition team has put together a package to deregulate the energy sector, which could lead to less stringent environmental policies. While this might be good news for the oil industry, it could also result in higher production in the United States, posing a threat to OPEC+.
OPEC+’s Delicate Balance
A further rise in US output would jeopardize OPEC+’s plans to raise output from April 2025 without risking a drop in prices. This delicate balance is crucial for OPEC+ countries, which rely heavily on oil revenues.
US Output Set to Rise in 2025
OPEC+ is currently holding back 5.85 million barrels per day of output capacity after a series of cuts since 2022. Meanwhile, total US oil output has risen 11% to 21.6 million bpd between 2022 and 2024, according to OPEC’s own figures.
OPEC+’s Shrinking Market Share
OPEC+’s output is equal to 48% of world supply, the lowest since its formation in 2016, when it held a market share of over 55%. This decline is largely attributed to the rise of US shale production.
Mixed Reactions from OPEC+ Sources
While some OPEC+ sources believe Trump’s policies could support oil demand, benefiting the producer group, others are concerned about the prospect of higher US oil supply. The main threat to OPEC+ is increasing US oil production, reducing the country’s dependence on imported oil and increasing exports.
Forecasting Future Supply
OPEC predicts total US supply will rise by 2.3% next year, while the IEA sees US output rising by 3.5%, faster than OPEC. However, some industry executives and analysts are skeptical about the potential for substantial US supply growth under Trump.
The Economics of Shale Production
Shale producers are focused on capital discipline and are expected to only increase output if it will be profitable. This scenario becomes less likely if prices drop. New oilfields take years to develop, making Trump’s pledges for permits to drill in new places unlikely to yield new barrels any time soon.
The Verdict
As the oil market navigates this uncertain landscape, one thing is clear: the return of Trump has set off alarm bells among OPEC+ delegates. The question remains: will US oil output continue to rise, and what will be the implications for the global oil market?
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