As Republican presidential candidate Donald Trump wrested the White House from the Democrats, international oil prices declined on Wednesday. Even as the fall in oil prices had more to do with the strengthening dollar–a stronger greenback makes dollar-denominated commodities like oil dearer in other currencies–and other oil market factors, the market reaction may be seen as symbolic of the general sentiment around oil prices going forward.
While it is too early to say how Trump’s second term as president will turn out to be for global oil markets, industry watchers expect the Trump administration’s economic and energy policies to put limited downward pressure on oil prices. If strictly implemented, his plans to impose high tariffs on imports–particularly on those from China–could negatively impact global oil demand as China is the world’s top oil importer.
Moreover, Trump’s push to significantly increase US oil production and even exports, for which he employed the slogan “Drill, baby, drill”, could add to the global oil supply and even push major oil producers to compete for market share, which again could put some pressure on prices.
Realistically though, the incoming dispensation in Washington is likely to push for a largely balanced global oil market to keep oil prices in check while avoiding a steep decline or crash, as that would make production unviable for American oil producers as well. And although Trump has been promising voters that he will drastically cut energy bills in the US, the White House on its own has limited instruments to meaningfully sway oil prices.
To be sure, there may also be a few bullish triggers for oil prices, like crackdown on sanction evasion by Iran and a tighter sanction regime for Venezuela under Trump, which could take some barrels off the market. But their impact may be limited.
For India, which is the world’s third-largest consumer of crude oil and depends on imports to meet over 85 per cent of its requirement of the commodity, downward pressure on international oil prices would be generally beneficial. Heavy dependence on imported crude oil makes the Indian economy vulnerable to global oil price volatility, apart from having a bearing on the country’s trade deficit, foreign exchange reserves, rupee’s exchange rate, and inflation.
S&P Global Commodity Insights (SPGCI) expects Asian buyers—including India—to witness significantly more opportunities to import “attractively priced crude from the US” as its competition with the OPEC (Organization of the Petroleum Exporting Countries) suppliers intensifies. The US is India’s fifth-largest source market for crude oil behind Russia, Iraq, Saudi Arabia, and the United Arab Emirates (UAE).
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“The dynamics of oil flows to Asia are unlikely to change significantly in 2025, barring dramatic policy shifts following the US presidential elections…With growth in US crude production and exports, the US will continue to compete with OPEC exporters in Asia, while targeting European refiners and developing new markets in Africa and Latin America,” said Benjamin Tang, head of liquid bulk at S&P Global Commodities at Sea.
Growing US crude production has posed a significant challenge for OPEC+ (OPEC and its other partner countries) in recent years, exerting downward pressure on prices, threatening the bloc’s market share and prompting massive output cuts. Analysts say increased US production, as well as output increases in other non-OPEC+ countries, such as Brazil, Guyana and Canada, have nearly nullified the impact of OPEC+ production cuts in 2024, SPGCI said.
Commodity market analytics firm Kpler believes that Trump will forcefully support domestic oil and gas producers in the US, pursue a policy of aggressive energy infrastructure buildout, and could attempt to moderate emissions standards.
“Despite our expectations for a sharp decline in US oil production growth next year, Trump will still push for policies supportive of oil and natural gas drilling, even if these measures are only marginally impactful. During the campaign, Trump has reiterated plans to expedite permit issuance for drilling on federal lands and an intent to roll back regulations that prevent oil and gas extraction operations. Trump will likely look to revoke Biden era executive orders as well, including aggressive greenhouse gas emission reduction targets, and a plan to conserve 30% of US federal lands by 2030,” Kpler said in a recent note.
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Kpler expects US oil production growth will slow considerably in 2025—to 110,000 barrels per day (bpd) from 360,000 bpd projected for 2024—after charting robust growth in the post-pandemic period, even with Trump in the Oval Office. The expectation is based on the likelihood of higher OPEC supply in the market in the coming months, led by Saudi Arabia.
“Ironically, this growth (in US oil production) was achieved under the Biden administration, which had a consistent anti-fossil fuel policy position. This serves as a reminder that market prices and company margins rather than Presidential politics play the biggest role in determining outright US production levels,” Kpler said.