In the early hours of Wednesday morning, with an electoral path to the White House in sight, Donald Trump took to stage at the Palm Beach Convention Center in West Palm Beach, Florida to declare victory in the 2024 U.S. Presidential Election.
Sandwiched among a long line of political quips, assertions and statements, were a few words for the U.S. oil industry, albeit slipped in via a joke. The President-elect noted: “Leave the oil to me. We have more liquid gold than any country in the world. We have more than Saudi Arabia. We have more than Russia.”
The short but emphatic insertion about the credentials of the U.S. oil industry in Trump’s first post-election statement tells us something. That yet again, as in 2017, Trump will enter the White House with the most pro traditional energy credentials of any U.S. president in 20 years.
What he said pretty is much on level. For as the spirit of American private enterprise would have it, the U.S. is the world’s leading crude oil producer, currently routinely producing well north of 13 million barrels per day.
At present that is way more than Saudi Arabia’s output constrained by its self-imposed curbs as part of the Organization of Petroleum Exporting Countries’ output cuts. It is also substantially more than Russia’s.
While U.S. oil, especially light sweet crude oil, is being regularly exported to southeast Asia, the country is also turning less and less to foreign imports dramatically reducing its reliance on imports.
But turmoil in the crude markets with the oil price still at three-year lows – of $75 per barrel of Brent crude and $72 per barrel of WTI – will a pro-oil presidency sustain current production volumes? The answer for 2025 at least appears to be yes and there are two aspects to this.
Part Trump, Part OPEC
Trump will yet again unshackle the industry from tighter regulation see under the Biden Administration, as he did when he took over from Barack Obama in 2017.
Exploration on Federal land will likely be revisited and offshore be stepped up, as will overtures on inter-connected North American pipelines, including the Keystone XL from Alberta, Canada to Houston, Texas, U.S.
In many ways, Trump’s own administration at least for its first two years would be unshackled too. Consider this – not only are the Presidency and Senate secure for the Republicans, potentially the energy markets could be looking at a Republican House too.
That raises the possibility of a complete Republican government that brings with it unhindered cabinet, governmental and judicial appointments, and relatively unchallenged industry, energy, economic and environmental policies (and much else beyond). Such a prospect is music to the oil industry’s years which has at best endured a cool relationship with the Biden Administration.
The excitement when news of the U.S. election outcome broke was palpable at the industry’s largest event – ADIPEC 2024 – being held in Abu Dhabi, UAE, from November 4 to 7. Few industry executives chose to speak on-record, but many acknowledged that Trump’s “potentially strong hand” was a positive development for both big integrated oil companies as well as smaller independent shale explorers.
And yet some of boost comes unexpectedly via OPEC too. Earlier this week, the producers’ group decided not to gradually unwind its production cuts and delay it by yet another month, in a bid to support the oil price above $70 as lower demand in China continues to weigh on prices.
It wasn’t the first time either. OPEC has balked from raising production a previous opportunities too, causing a temporary jump in prices at various points this years. And each time it does that, U.S. producers, who have to grapple with much higher margins compared to their peers in the Middle East, put hedging plans in place on a 12 to 18 months out basis to protect their takings at elevated levels.
Industry sources both in Houston and among U.S. participants in Abu Dhabi at ADIPEC 2024 indicated that many have protected themselves in the $75-80 per barrel margin well into 2025.
So, while more oil in the face of potentially lower demand stemming from China’s lackluster performance, possibility of trade wars and other factors may knock prices lower next year, many U.S. players have ring-fenced themselves from such a near-term dip. Simply put, U.S. production may remain elevated in 2025 thanks willingly to Trump and unwittingly to OPEC.