BMI Says Trump Presidency Breeds New Uncertainty for Oil Price

In a BMI report sent to Rigzone by the Fitch Group recently, analysts at BMI warned that the Trump Presidency “breeds new uncertainty” for the Brent oil price.

“Donald Trump has won the U.S. presidential election but without greater clarity on which policies Trump will pursue in office and who will be supporting him in enacting his agenda, it is difficult to say with any certainty what the net impact on prices will be,” the analysts noted in the report.

The BMI analysts stated in the report that their core view sees Trump adopt a relatively pragmatic approach to policy, in which he either chooses not to pursue more radical policy shifts or is held back by institutional constraints or the influence of more moderate policy advisors. They warned, however, that this is “far from assured”.

“In any case, the impact on oil market fundamentals in 2025 will likely be somewhat limited,” the BMI analysts said in the report.

“Although Trump will likely support the domestic oil and gas sector, not least via looser regulation, this is unlikely to materially alter the level of U.S. production growth in the short run,” they added.

“Output is influenced by myriad other factors, such as oil prices, input costs, and shareholder pressures and these will take precedence over the course of the year,” they continued.

The BMI analysts also highlighted in the report that oil demand could receive a boost under Trump, “through stronger promotion of fossil fuel use at home and reduced support for low carbon energies”.

They added, however, that the effects on consumption will be relatively limited and will accrue over a multi-year horizon.

“Moreover, the impact of a Trump presidency on U.S. oil supply and demand will have conflicting impacts on Brent,” they noted.

Main Transmission Channels

In the report, the BMI analysts said the “main transmission channels” will be international and warned that “through these channels, oil prices may be more vulnerable to shocks under the second Trump presidency”.

“Again, this will depend on how he approaches the presidency, but key areas to watch include a potential tightening of sanctions, notably on Iran, meaningful shifts in the foreign policy approach, and rising trade tensions, in particular with Mainland China,” they added.

“Again though, some of these will be bullish factors and others bearish and we are somewhat ambivalent towards the net impact on Brent at this stage and hold a neutral view for now,” they went on to state.

The analysts highlighted in the report that the situation in the Middle East is fluid and said it has been a source of continuous uncertainty and sporadic, but sometimes significant, risk premia over the course of the past 13 months.

“The election of Donald Trump has somewhat shifted the calculus in the region, but there remains considerable uncertainty as to how the nature of U.S. involvement will change and what this means for conditions on the ground,” they noted.

The analysts said in the report that their core view remains that the wars in Gaza and Lebanon will end in the first half of next year and stated that “ending these wars will likely be a priority for President-elect Trump”.

“This would erase the conflict-related risk premia, removing a level of support for crude prices,” they pointed out.

The BMI analysts warned in the report that, in the short term, “we could see Israel increase the intensity of the conflict to pave the way for a future ceasefire to be brokered by Trump”.

“We also expect Iran to retaliate against Israel’s October 25 attack, ramping up the tit-for-tat exchanges between the two,” they said.

“Importantly, Trump would be more willing to support an Israeli attack on Iranian nuclear facilities than President Biden has been. Any attacks on these facilities would mark a significant escalation and could temporarily inflate the risk premia being priced into Brent,” they analysts stated.

Oil Production Disruption

The risk of physical disruption to oil production or exports stemming from the wars remains relatively low, the BMI analysts said in the report.

They added, however, that, “given that MENA is a major oil-exporting region and that many of its largest exporters are heavily reliant on access to the Strait of Hormuz, prices are generally reactive to developments in the Middle East”.

“There have been some signs of fatigue, with market participants seemingly becoming somewhat desensitized to war-related risks to prices, but risk premia nevertheless remain a recurrent feature of the market,” they said.

The analysts warned in the report that greater physical risks may stem from a potential shift in the U.S. strategy towards Iran, “with President-elect Trump likely to adopt a more hawkish stance”.

“Although he has indicated that he is open to re-engagement with Iran, it is questionable whether Tehran will view him as a trustworthy partner and on what terms this re-engagement could occur,” the analysts said.

“In the meantime, it is likely that Iranian oil exports will face greater scrutiny and that the Trump administration will push for tighter enforcement of existing sanctions measures,” they noted.

“That being said, given that the bulk of Iranian oil now flows to independent, teapot refiners in Mainland China, it is questionable how effective tighter sanctions enforcement will be,” they went on to state.

Rigzone has asked the Trump campaign for comment on BMI’s report. At the time of writing, the Trump camp has not yet responded to Rigzone.

Brent Forecast

BMI projected that the Brent price will average $81 per barrel in 2024, $78 per barrel in 2025, and $77 per barrel across 2026, 2027, and 2028.

A Bloomberg Consensus included in the report forecast that Brent will average $81 per barrel this year, $76 per barrel next year, $75 per barrel across 2026 and 2027, and $72 per barrel in 2028. BMI is a contributor to the Bloomberg Consensus, the report highlighted.  

“This month we have left our forecast for Brent crude unchanged at $81 per barrel in 2024, falling to $78 per barrel in 2025,” the BMI analysts noted in the report.

“The trajectory of price action over the coming year will be heavily influenced by three key factors: OPEC+ policy, the outcome of the U.S. presidential election, and tensions in the Middle East,” they added.

In a report sent to Rigzone by the Fitch Group back in August, BMI projected that the Brent price would average $85 per barrel this year, $82 per barrel in 2025, and $81 per barrel across 2026, 2027, and 2028.

A Bloomberg Consensus included in that report forecast that the Brent price would come in at $84 per barrel this year, $80 per barrel next year, $79 per barrel across 2026 and 2027, and $81 per barrel in 2028.

Brent Enters Correction Phase

In an oil market update sent to Rigzone on November 6, Mukesh Sahdev, Rystad Energy’s Global Head of Commodity Markets - Oil, said “Brent has entered a correction phase, ending several weeks of gains after surpassing the $75 per barrel mark, pre-[Trump]victory”.

“This correction reflects expectations of increased U.S. supply and a potential demand slowdown tied to a tariff-driven approach toward key trading partners, particularly China,” Sahdev added.

“As the market navigates shifting political and geopolitical hurdles, oil prices remain under pressure from ongoing supply chain disruptions and a sluggish macroeconomic recovery,” the Rystad head added.

“Adding to the complexity, the strengthening dollar, boosted by Donald Trump’s return to office, leaves oil market participants grappling with election-related uncertainties that can only be answered in the coming months,” Sahdev went on to state.

Upside, Downside

In a note sent to Rigzone on November 8, which looked at “Trump 2.0”, Ole Hansen, Saxo Bank’s Head of Commodity Strategy, outlined upside and downside pressures on oil prices.

“Upside pressures come from potential increased sanctions on Iran and Venezuela, along with geopolitical risks heightened by the Israeli conflict with Hamas and Hezbollah, and an emboldened Netanyahu following Trump’s win,” Hansen said in the note.

“Downside factors include a strong USD on central bank rate divergence, a sluggish demand outlook into 2025, and rising U.S. stockpiles, along with OPEC+ production increase discussions and a potential resurgence in U.S. drilling activity,” he added.

Hansen went on to state, however, that U.S. crude production “will likely only increase if oil producers see a profit, and with WTI currently trading near $60, the incentive to increase production further is very limited”.

To contact the author, email andreas.exarheas@rigzone.com