A recent BMI report, shared with Rigzone by the Fitch Group, warns that the Trump presidency creates “new uncertainty” for Brent oil prices. The analysts noted that, while Donald Trump’s win in the U.S. presidential election is a significant event, there is still much uncertainty about which policies he will pursue and who will support his agenda. As a result, it is difficult to predict the exact impact on oil prices.
BMI’s analysts predict that Trump will likely adopt a pragmatic approach to policy, which may prevent drastic shifts or be constrained by institutional checks and more moderate advisors. However, they caution that this is not guaranteed.
The analysts also mention that the impact on oil market fundamentals in 2025 will probably be modest. While Trump is expected to support the domestic oil and gas industry, particularly through relaxed regulations, they believe this will not significantly affect U.S. production growth in the near term. Factors such as global oil prices, input costs, and shareholder pressures are expected to be more influential on production levels in 2024.
Trump’s policies could encourage higher domestic oil demand, especially by promoting fossil fuel use and reducing support for renewable energy. However, the analysts predict that any effect on consumption will be gradual, over several years.
Impact of Foreign Policy and Geopolitics
The analysts argue that international developments will likely have a greater impact on oil prices during Trump’s presidency. Key areas of concern include potential changes in U.S. foreign policy, the imposition of stricter sanctions on countries like Iran, and rising trade tensions, particularly with China. The analysts point out that some of these factors could push oil prices higher, while others may have a negative effect, leading to a neutral outlook for Brent oil prices in the short term.
The Middle East, a constant source of uncertainty, could see changes under Trump’s leadership, particularly in terms of U.S. involvement in regional conflicts. BMI’s analysts suggest that the ongoing wars in Gaza and Lebanon may come to an end in 2025, which could reduce conflict-related risk premiums and ease upward pressure on crude prices. However, there is a possibility of intensified conflicts in the short term, especially between Israel and Iran.
The analysts also warn that Trump’s potential support for Israeli military actions, such as an attack on Iran’s nuclear facilities, could escalate tensions and temporarily push oil prices higher.
Risks to Oil Production and Exports
While the risk of direct disruptions to oil production in the Middle East remains low, the analysts caution that any shift in U.S. strategy towards Iran could increase physical risks to oil exports. If Trump adopts a more aggressive stance toward Iran, it could lead to greater enforcement of sanctions. However, the effectiveness of these sanctions may be limited, as much of Iran’s oil now flows to Chinese refineries.
Brent Price Forecast
BMI has updated its forecast for Brent crude oil prices. They expect the average price to be $81 per barrel in 2024, $78 in 2025, and around $77 per barrel in the following years. A Bloomberg Consensus included in the report projects similar figures, with Brent averaging $81 per barrel in 2024 and dropping to $76 in 2025. The price outlook will be heavily influenced by OPEC+ policies, the outcome of the U.S. presidential election, and geopolitical tensions, especially in the Middle East.
Oil Market Update: Rising Risks and Market Correction
In an update from November 6, Mukesh Sahdev, Global Head of Commodity Markets at Rystad Energy, noted that Brent has entered a correction phase after weeks of gains. This is partly due to expectations of higher U.S. oil supply and a potential slowdown in demand, driven by tariffs and trade tensions, particularly with China.
Sahdev added that the strengthening U.S. dollar, boosted by Trump’s return to office, is another factor creating uncertainty in the oil market. Oil prices are also under pressure due to ongoing supply chain issues and a slow macroeconomic recovery.
Upward and Downward Pressures on Oil Prices
On November 8, Ole Hansen, Head of Commodity Strategy at Saxo Bank, identified both upside and downside risks for oil prices under Trump’s second term. On the upside, tighter sanctions on Iran and Venezuela, along with heightened geopolitical risks from the Israeli-Hamas conflict, could push prices higher. On the downside, a stronger dollar, weak demand forecasts, rising U.S. stockpiles, and potential increases in OPEC+ production could keep prices in check.
Hansen also pointed out that U.S. oil production may increase only if prices rise enough to incentivize producers, but with WTI trading around $60 per barrel, further increases in production are unlikely in the short term.
Related Topics:
- Today’s WTI Crude Oil Price Chart (November 13)
- Today’s Oil Price Index Chart ((November 13)
- Today’s Brent Crude Oil Price Chart (November 13)