Oil producers have much to do in second Donald Trump presidency

A second term Donald Trump presidency should bring about significant political, economic, and security repercussions, prompting other countries to reassess their priorities. The second ‘Trumpian’ era may turn out to be even more impactful, as the new US President would be unburdened by re-election concerns.

Our discussion focuses on the potential impact on oil and energy policies, both in the US and globally—and an area of particular interest to GCC nations and oil-producing countries.

During Trump's first term, US shale oil production surged, peaking at 9.5 million barrels per day in July 2023, accounting for 65% of the country's total oil output. However, production has since declined to 8.6 million barrels per day in the second quarter of this year, largely due to reduced drilling activities following restrictions from the Biden administration.

Recalibrating US shale output

Trump has suggested that his new administration would boost shale oil production again, but that could take time as many companies had reduced or ceased operations over the last four years.

On the global front, Trump's approach to the Russian-Ukrainian conflict diverges sharply from that of the current administration. He has claimed he can quickly bring an end to the war—an outcome that could pave the way for Russian oil and gas to return to European markets. Notably, despite Western sanctions and Trump's call for European countries to rely on gas supplies from the US, Russian oil production has remained largely stable, with shipments redirected toward Eastern markets.

These domestic and international dynamics would affect global oil and gas supply levels, potentially causing significant fluctuations and a gradual downward trend in prices. However, any improvement in European-Russian relations could also boost economic recovery, particularly in Europe and China, thereby increasing demand and sustaining relatively high oil prices.

The OPEC+ grouping will play a pivotal role in managing these market dynamics. The average cost of producing shale oil—ranging from $55 to $80 per barrel—remains high compared to conventional oil.

An HSBC report suggests that US shale oil production capacity is likely to lose momentum by 2028 due to technical and cost constraints. The country’s oil reserves are relatively limited, with 32 billion barrels of conventional oil and 78 billion barrels of shale oil, some of which remain difficult to extract. Meanwhile, the US has the world’s highest level of domestic oil consumption at 20 million barrels per day.

This outlook implies that the potential effects of Trump’s energy policies on global oil and gas markets may not raise substantial concerns in the coming years.

A tweaking for OPEC+ strategies?

On the other hand, OPEC+ members may need to monitor shifts in US energy policy under a new Trump administration, as they may need to adjust some of their current strategies to maintain stable oil prices, essential for sustaining growth momentum in oil-producing countries.

Trump's energy policies also have positive aspects for oil producers, as they emphasise continued reliance on oil and gas, in contrast to the current administration's shift toward renewable energy and reduced fossil fuel production. While there’s broad support for renewable energy development, including from GCC countries investing significantly in clean energy, a gradual transition is crucial. Moving too quickly away from traditional sources could risk global energy crises if renewable alternatives aren't yet able to meet rising demand.

In this regard, a minimal level of coordination between global oil and gas producers, including the US, could help maintain stability in energy markets and support steady economic growth worldwide.