Trump 2.0 and Oil Markets
Donald Trump’s electoral victory is now complete. The Republicans have won the Senate and are favoured to regain full control of Congress by retaining the House of Representatives. A Republican trifecta is set to strengthen the scope of Trump’s policy ambition and freedom to enact his second-term agenda. What are the implications for oil markets?
- 2025 oil demand growth could be revised lower: consensus estimates for 2025 oil demand growth range from 1-1.5m b/d, with OPEC+ on the bullish side and the IEA holding its more bearish outlook. President-elect Trump has pledged to hike tariffs on US imports to at least 10% globally, with a more penal rate of 60% for Chinese imports. Amplifying Trump’s concerns remains China’s widening trade surplus, with exports set to reach a record volume this year as the country offsets domestic weakness with higher exports (see: Fig. 1). As we exit 2024, Chinese demand growth has flattered to deceive, with consensus demand growth estimates ranging from 0.1-0.3m b/d. More recently, Saudi Aramco lowered its crude allocation to Chinese term clients for Dec-loading cargoes (see: Fig. 2). While it is too early to tell, China is unlikely to stand still in response to Trump’s tariff regime. Beijing can respond in a variety of ways: retaliatory tariffs, US treasury sales, a devaluation of the Yuan and a more expansive stimulus package to stimulate domestic demand. Further trade diversions to maintain global exports are likely, too. The net impact is likely to prove inflationary to the US. A stronger USD will also filter through to Emerging Market (EM) buyers of crude
- Trump is unlikely to have any major impact on US crude production growth: There is a flawed narrative that a second Trump administration will lead to a surge in US oil production. US oil and gas production grew faster under the Obama administration than the first Trump administration. It was also under Obama that the US lifted its export ban on US crude, helping anchor the role of the US as the world’s marginal supplier. Even under Biden, US oil supremacy was reinforced by the introduction of WTI Midland as a key grade in the Dated Brent basket – the global benchmark used to price over 70% of the world’s crude. US crude supply currently sits at around 13.45m b/d, just 450kb/d higher than the pre-pandemic high of November 2019 when production reached 13m b/d. Even under an aggressive US supply growth assumption, the net effect of Trump’s trade policy would offset any supply gains, due to weaker demand growth and the crude quality imbalance in the market. The market is already awash with light sweet crude, can the global refining system handle any more? Less discussed – and just as important – remains the potential negative impact of higher tariffs on US steel imports, core input costs for the US shale value chain.
- What about US sanctions policy? President-elect Trump has made no secret of his ambition to curb Iran’s rising liquids exports, which have grown under President Biden. Iran’s crude and condensate exports were below 500kb/d throughout H2 2019 and 2020 as Trump’s initial round of sanctions took place. Under Biden however, exports have grown and have averaged around 1.6m b/d this year. At the time of Trump’s “maximum pressure” campaign in 2018, Iran sold crude to buyers in Europe, the Med and Asia (see: Fig. 4). Today, Iran only sells its crude to Chinese independent refiners, often using Yuan-denominated banking systems. Any attempt by Trump to repeat his “maximum pressure” playbook against Iran from 2025 onward will prove more difficult. Iranian sales to China are outside the US banking system (unlike in the period 2016-19 when Iran had a more diversified pool of buyers); second, Iran’s dark fleet has grown more substantially since 2019, with third-party countries such as Malaysia acting as key STS hubs for illicit cargo movements. In a scenario where Trump eases tensions with Moscow over Ukraine, any repricing of Russian crude in the market (i.e. narrowing discounts) could make Iranian barrels even more attractive to China. In this light, the market should not expect any major loss to Iranian crude exports in 2025.
The next OPEC+ Joint Ministerial Monitoring Committee (JMCC) meeting is due to be held on 1 December. Market chatter has grown that OPEC+ may defer (again) its plan to unwind voluntary cuts from Jan 2025. Some have even argued that OPEC+ may struggle to release barrels back into the market until H225. Certainly, while lengthening global oil balances in 2025 provide Trump some geopolitical flex, the room for OPEC+ manoeuvrability looks more limited in the short-term.
