IGI Logo

The re-election of Donald Trump signals a significant shift in global energy policies, with potential wide-reaching effects on the crude oil market. Trump's emphasis on energy independence and resource dominance starkly contrasts with the climate-focused agenda of his predecessor, Joe Biden. By exploring historical trends and policy directions, it becomes evident how Trump’s vision could reshape oil prices, production, and trade on both national and global scales.

Donald Trump has long championed the strategic use of America’s abundant energy resources to bolster economic growth. In his victory speech, he reiterated his commitment to maximizing domestic production, calling U.S. oil reserves “liquid gold.” During his first term, oil and gas lease issuances on federal lands soared, peaking at over 2,000 annually between FY2017 and FY2019. This was in stark contrast to fewer than 500 annual leases under Biden. Federal lands, which accounted for 26% of U.S. oil production in 2023, are poised for renewed exploitation under Trump’s leadership, with plans to reverse Biden-era restrictions on lease sales and royalty rates.

While oil production grew under Biden’s presidency, it did so at a slower pace, influenced more by market forces than policy incentives. During Trump’s initial term, U.S. oil output rose by an unprecedented 3 million barrels per day (b/d), marking the largest increase under any administration. By comparison, production growth under Biden has been moderate, with crude oil prices averaging $75 per barrel, compared to $50 per barrel during Trump’s presidency. Trump’s second term is expected to reinvigorate U.S. oil production, particularly on federal and offshore lands, where expanded rights could drive further output. However, economic feasibility remains a limiting factor. U.S. producers require an average oil price of $64 per barrel for profitable drilling, while forward prices for 2025 and 2026 hover at $70 and $67, respectively.

Trade dynamics will play a crucial role in Trump’s energy strategy. U.S. crude oil exports to China, which once constituted 25% of total exports in 2018, have dwindled to just 7% by mid-2024. This decline reflects shifting trade relationships and the residual effects of tariffs imposed during Trump’s first term. Should trade tensions reignite, retaliatory tariffs on U.S. crude oil and LNG could disrupt export flows, as seen in 2018 when the WTI-Brent price spread widened from $3 to over $11 per barrel. Such disruptions highlight the volatility inherent in Trump’s trade policies.

Trump’s foreign policy agenda could have profound implications for the global oil market. His administration’s potential reimposition of strict sanctions on Iran may drastically reduce Iranian oil exports, tightening global supply by over 1 million b/d. This would likely erase the projected 2025 surplus of 0.8 million b/d and push Brent crude prices above $80 per barrel. Additionally, Trump’s aggressive stance on Iran and his support for Israel could exacerbate tensions in the Middle East, increasing geopolitical risk premiums and adding further volatility to oil prices.

Liquefied natural gas (LNG) is expected to be a cornerstone of Trump’s energy policy. By lifting the Biden administration’s pause on LNG export project approvals, Trump aims to attract long-term investments in the industry. Europe’s growing reliance on U.S. LNG, driven by reduced dependence on Russian gas, provides a stable demand base. However, the development of new LNG capacity toward the end of the decade could shift market dynamics in favour of buyers. Infrastructure expansion under Trump, including pipeline projects in the Permian Basin, could alleviate production bottlenecks, but these initiatives will face regulatory and environmental challenges.

Criticism of Trump’s energy policies is inevitable. Environmental advocates argue that the repeal of methane emission fees and vehicle emissions standards could increase greenhouse gas emissions, undermining global climate goals. Trump’s stance on the Paris Climate Accord, which he withdrew from during his first term, could further strain international cooperation on decarbonization efforts. While the American Petroleum Institute (API) has urged Trump to balance industry growth with environmental considerations, his track record suggests a stronger focus on economic priorities.

Thus, Trump’s vision for energy dominance is set to accelerate production growth, expand exports, and heighten trade volatility. These policies aim to strengthen the U.S. oil market but also introduce risks, including geopolitical tensions and environmental challenges. As the global energy market evolves toward sustainability, Trump’s policies will play a pivotal role in shaping the balance between traditional energy priorities and emerging challenges in a rapidly changing world. Given the heightened volatility in the crude oil market, traders and businesses can effectively manage risks by leveraging Crude Oil Futures and Options on NSE. Tools such as hedging with futures, protective puts, straddles, and calendar spreads provide flexibility to navigate uncertainties and capitalize on market opportunities.

Above views are of the author and not of the website kindly read disclaimer