Amid Donald Trump‘s recent pledge to boost U.S. oil production significantly, questions arise about the necessity and impact of such a move. Vikas Dwivedi, a global energy strategist at Macquarie Group, has expressed skepticism regarding the need for an additional 3 million barrels per day.
What Happened: Dwivedi discussed the potential impact of Trump’s second term on the U.S. oil supply. Talking to CNBC “Squawk Box” on Monday, he said that anticipates only marginal increases in supply, despite Trump’s “Drill Baby Drill” stance.
“We actually think there will be marginal supply increases from the U.S. The risks to supply will eventually be marginal but in the beginning of the administration, we think, the moves that they will make will increase supply risks,” Dwivedi said, adding the risks arising particularly through attempts to limit Iranian oil exports. He noted that the Ships Act aims to eliminate entities facilitating Iranian crude sales, but this could inadvertently reduce global oil supply.
Addressing Trump’s ambitious energy policy, Dwivedi questioned the necessity of increasing U.S. oil production.
“The real challenge is: does the world need that much oil? And if the U.S. did grow 3 million barrels a day during the Trump Administration, that’s like 750,000 a day over four years,” he explained
“I think the right question to ask energy executives is are you okay with $40 oil because I think that’s what you would end up with and are you okay with trying to figure out how to maintain production and um you know still be able to do the dividends and the share buybacks that are now not as discretionary as they used to be.”
Furthermore, Dwivedi highlighted the geopolitical risks associated with a rapid U.S. withdrawal of support for Ukraine. He warned that if Ukraine feels cornered, it might target Russian oil infrastructure, which could further impact the global oil supply.
Why It Matters: Trump’s energy strategy, which includes faster permitting and weaker environmental regulations, aims to cut American energy costs significantly. However, experts have warned that these promises may not materialize due to the complexities of global and regional energy markets. Many oil drillers remain cautious about increasing production, opting instead to return cash to shareholders. This hesitancy is compounded by factors like weather patterns and global conflicts, which are not easily influenced by policy changes.
Meanwhile, Elon Musk, who has been announced to head the new Department of Government Efficiency (DOGE), continues to advocate for solar power as the future of energy generation, presenting a different vision from Trump’s fossil fuel-focused approach. Analysts also see an opportunity for investment in renewables, highlighting the sector’s potential for growth even amid political shifts.
Price Action: As per Benzinga Pro, oil ETFs have seen slight gains in the past one month surrounding the presidential elections. As of Monday, ProShares Ultra Bloomberg Crude Oil UCO increased 3.51%, SPDR S&P Oil & Gas Exploration & Production ETF XOP increased by 10.78%, while MicroSectorsTM Oil & Gas Exploration & Production 3X Leveraged ETNs OILU increased by 20.99%.
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