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Trump is back, and with him, controversy! For the oil industry, his presence is both a promise and a risk. On the one hand, there is enthusiasm for his unconditional support for cheap oil and unbridled production. On the other, there is the shadow of a possible negative impact on prices and the sustainability of the market. By stating that he “will drill as much as possible” and that “energy prices will fall”, the Republican made it clear that he intends to place the United States as the leader of a new phase of fossil fuels, but with impacts that are still difficult to predict.
The oil industry has high expectations. During the Republican convention, Trump promised to bring energy prices back to low prices and boost domestic oil and gas production. Industry representatives, such as Jeff Eshelman, director of the Independent Petroleum Association of America (IPAA), have expressed their interest in working alongside the Trump administration, should he return to power, in pursuit of “steady production” for the country. This scenario represents a shift away from the limitations imposed by the Biden administration, which prioritized energy transition policies and environmental regulation.
Rising oil production and the role of shareholders in Trump's return
However, it is not all enthusiasm. The current market scenario shows that oil companies have prioritized the appreciation of profits for shareholders rather than increasing production, as pointed out by Bill O'Grady of Confluence Investment Management. The analyst highlights that, as much as Trump wants to “drill to the max”, the final decision still depends on the market and the financial interests of companies.
According to CFRA’s Stewart Glickman, the oil industry remembers all too well the fallout from the last big surge in U.S. production. In 2016, Saudi Arabia flooded the market in response to U.S. shale oil, and the price of West Texas Intermediate (WTI) oil plummeted to $26 a barrel. For many executives, the experience of industry bankruptcies due to the high costs of shale drilling compared to conventional oil is still a bitter memory.
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Impact on prices and the global economy
With Trump likely to raise tariffs on products from major U.S. trading partners such as China, the economic fallout is another concern. Analysts at Wood Mackenzie warn that such a move could slow global economic growth, reducing demand for refined products and putting downward pressure on oil prices, exactly the opposite of what the oil industry wants.
Finally, climate policy also comes into play. Trump has advocated reversing Biden’s energy transition policies, such as cuts to renewable energy investments and incentives for the hydrocarbon sector. Glickman believes that this reversal could, in the long term, even boost oil prices due to the decline in investment in alternative energy.
For the oil industry, Trump positions himself as a defender of cheap oil and freedom of exploration. However, with the dependence of the sector In terms of market and shareholder pressure, Trump’s ability to implement his promises may be limited. As a mixed blessing for the industry, his possible return to the White House presents the industry with a dilemma: whether to take advantage of political support or risk a further decline in prices and profits.
