US companies won’t invest in new acreage unless it’s economically viable, and that kind of shift also doesn’t happen overnight. These companies are practicing restraint and focused on returning capital, and given all the uncertainty on monetary policy, they’re being cautious. Trump wants lower interest rates, but you can’t cut rates without stabilizing inflation first. If Trump wants to increase US exports, gas might be the more interesting story. There’s significant potential to expand LNG exports to Europe.
Expectation for more stringent US sanctions under Trump 2.0?
I think Iran will likely be a target. It’s a relatively easy move. Iran is already weakened, especially with China reducing oil imports due to Treasury sanctions on tankers and the shadow fleet, shifting some of its purchases toward Middle Eastern Arab producers. Russia is a more complicated situation. Trump will want to balance negotiating peace in Ukraine while also limiting Russia’s revenue streams, and those two goals don’t align either. We will see a slightly tighter oil market overall this year, but there’s so much spare production capacity. Saudi Arabia alone is sitting on more than 3 million b/d that could be brought online if needed.
How might OPEC+ policy respond to new sanctions on its members?
Even if there are tighter US sanctions on Iran, the bigger question for OPEC+ will be to make up for any losses from Russia. Saudi Arabia values cohesion within OPEC+, particularly its alliance with Russia and it will want to maintain that, or they risk losing their grip. Let’s also remember that Russia is still allowed to sell oil as long as the price cap is in place, and of course, when prices drop, it makes compliance with the cap much easier. It’s unlikely Trump will decide to remove that while he’s trying to make peace in Ukraine. That said, sanctions on certain companies operating in Russia could impact production further down the line.