Trump win points to net bearish oil outlook: Citi

Investing.com -- A second Trump presidency could signal a bearish outlook for oil markets, according to Citi, as it raises potential for shifts in trade policies, OPEC+ dynamics, and domestic energy regulations.

Following Trump’s victory, Brent crude initially dipped nearly $2 per barrel before recovering. Citi strategists anticipate downward pressure on prices to continue moving into 2025, with the average Brent price forecast at $60 per barrel, around 20% lower than current levels.

This reflects potential trade tensions and increased supply from OPEC+ nations, alongside a US energy policy likely to support domestic fossil fuels.

Citi highlights that Trump’s return could lead to renewed tariffs, which might dampen global economic growth, particularly in Europe and China. The report notes that a 10% US tariff on global imports could reduce global GDP by 0.4%, while a targeted 60% tariff on Chinese imports might reduce China’s GDP by 2.4%.

“This could further dent into global oil demand growth, especially for diesel as the fuel of international logistics, posing downside risks to our current global oil demand growth expectations of 0.9-m b/d for next year,” strategists led by Francesco Martoccia said in a note.

On the supply side, Trump’s influence could prompt OPEC+ to accelerate the easing of production cuts, potentially boosting supply in global markets.

Strategists point out that Trump may adopt a less aggressive stance on “maximum pressure” sanctions, unlike his first term, though risks of renewed sanctions on Venezuela and Iran persist, which could lend some support to oil prices.

Trump's policies might also benefit US energy producers through potential reversals of Biden-era regulations. This could mean lower royalty rates and eased environmental restrictions, potentially making federal lands more accessible for oil and gas exploration.

However, Citi expects a limited immediate impact on overall production due to current market constraints.

Moreover, Trump may maintain some provisions of the Inflation Reduction Act (IRA), especially given its popularity in Republican states benefiting from significant renewable investments. However, stricter criteria for electric vehicle subsidies could dampen EV adoption rates, reducing a demand shift away from fossil fuels.

Source: Investing.com