Are the oil markets still digesting the news of Donald Trump’s reelection, or has it settled into a “business as usual” stance?

The news this week presents two related but distinct issues, specifically regarding oil prices, I sense a “wait and see” approach. Everyone knows that Trump aims to increase domestic energy production, especially through shale oil, and by opening federal lands and natural preserves to drilling, currently off-limits. However, since these are long-term goals and he has strong allies in the oil industry, this does not necessarily imply an immediate price drop. On the other hand, there is the likelihood of heightened U.S. geopolitical assertiveness, which could slow global growth. Trump’s close alignment with Israel and its leadership might influence regional dynamics, particularly in the context of any escalating tensions with Iran. In the short term, this could push oil prices higher due to a risk premium. So, the market is weighing both long-term and short-term dynamics: long-term factors remain uncertain, while short-term factors suggest some price firmness. In the medium term, attention will likely shift to demand-side factors, particularly regarding U.S.-China relations and potential trade conflicts. It is still too early to tell, but the specifics, such as the types of tariffs and their broader impact on global trade, could play a significant role. China’s response, including any economic stimulus measures that might boost oil demand, is another factor to monitor.

What do you think about OPEC’s repeated postponement of unwinding supply cuts?

There is a long-standing fault line within OPEC that has persisted for years and remains unresolved. The UAE, in particular, still faces the largest percentage cut among major producers when measured against its total new capacity. Understandably, they are eager to address this, especially since they have also announced plans to further increase their capacity. There are two complex issues at play here. The first is a medium-term issue: the cycle of constant postponements in rolling back production cuts and setting production commitments. This is putting OPEC+ in a tighter corner because, as things stand, we are likely to see an oversupply in Q4 2024 and throughout 2025. The longer these rollbacks are delayed, the more significant the price decline could be when they eventually happen. Add to that the ongoing challenge of maintaining discipline among members like Iraq, and it becomes a major political issue that OPEC+ seems unable to resolve.