Energy Effects of Second Trump Term Unclear, Citi Says — OPIS

Some nine months before the U.S. presidential election, Citigroup commodity analysts on Thursday examined what a Donald Trump victory, which they described as a "plausible outcome," could mean for energy markets.

The investment bank, perhaps somewhat surprisingly, concluded that a second Trump term accompanied by a "red wave" election could present a "fat tail risk" for oil and gas prices. And Citi reiterated its out-of-consensus view that Brent crude oil could fall to as low as about $60/bbl in 2025.

The assessment of energy policy in a second Trump term wasn't clear cut. The analysts acknowledged that a Trump victory might lead to a further clampdown on crude oil exports from Iran or Venezuela that helped to temper prices last year and so far in 2024.

Citi, however, said renewed trade tensions, particularly with China, which could result from a second term for the former president, may depress global GDP and trade growth. President Trump might impose a 10% tariff on U.S. imports, including a 60% levy on Chinese goods. During his term in office, global oil demand growth fell from 2 million b/d in 2017 to 1 million b/d in 2019, the bank said. Trade tension would lead to reduced container traffic and port activity and impact trucking tonnage, which would, in turn, suppress demand for diesel.

Citi's analysts suggested the most significant impact of a second Trump term would come if his administration works to resolve the war between Russia and Ukraine. An end to the conflict, they said, could permit the resumption of Russian crude and refined products flows to traditional customers, reducing the wide price differential between Brent and Urals crude. Ending the war also could pressure freight costs lower, reducing the cost of transporting oil.

Further, the investment bank suggested a second Trump administration would have a warmer relationship with Saudi Arabia than does the Biden administration.

President Biden has had a very "cool" relationship with Saudi Crown Prince Mohammed bin Salman, the analysts said, adding that President Trump could persuade him and other OPEC+ members to export more oil sooner.

Citi analysts downplayed potential impacts on U.S. oil and gas production trends, even as it acknowledged that a second Trump administration would likely offer greater support for fossil fuels and energy independence and reduce incentives aimed at encouraging consumers to buy electric vehicles.

But the bank's bottom-line conclusion holds that most U.S. oil production trends are predominantly driven by technological improvements, the costs of production, and oil prices. The U.S. government, it added, has limited influence on state level drilling and production, according to the bank.

The analysts said a second Trump term might have a more meaningful impact on power and other new energy markets. A new Trump administration could again opt to withdraw the U.S. from the Paris Agreement on climate change and push back on various climate initiatives advanced by the current administration.

And should a Trump victory in November be accompanied by continued Republican control of the U.S. House of Representatives, there might also be significant spending cuts to EPA's budget, the analysts said. But radical revisions to the Inflation Reduction Act aren't likely since those rules encourage domestic investments in manufacturing and infrastructure, which would likely be goals of a Trump second term, the bank said.

This content was created by Oil Price Information Service, which is operated by Dow Jones & Co. OPIS is run independently from Dow Jones Newswires and The Wall Street Journal.

--Reporting by Tom Kloza, tkloza@opisnet.com; Editing by Jeff Barber, jbarber@opisnet.com

(END) Dow Jones Newswires

February 09, 2024 12:12 ET (17:12 GMT)

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