Trump: The Promise of a New Erratic Era in Oil Markets

In his inauguration speech on Monday, January 20, Donald Trump stated that the United States would become “a rich nation again, and it’s the liquid gold beneath our feet that will help us get there.” In this context, what can we anticipate for the oil markets in the coming months? A point of view from Emmanuel Hache, research director at IRIS, specialist in energy foresight and natural resource economics.

Will Donald Trump’s policy strengthen the American position in the oil markets?

The inaugural speech is hardly surprising, given that the now 47th President of the United States had repeatedly used the 2008 John McCain campaign slogan “drill, baby, drill” during his 2024 election campaign, proposing a plan for massive intensification of drilling should he be re-elected. Declaring a National Energy Emergency on the first day of his term, Trump signed an executive order aimed at “liberating American energy” which involves “immediate review of all agency actions that may hinder the development of national energy resources.” Behind these strong messages lies Trump’s intention to significantly increase oil production in the U.S., notably by easing restrictions on drilling in Alaska and lifting the suspension of gas exports imposed during the Biden administration.

The U.S., the second-largest energy consumer and the second-largest emitter of CO2 globally, has been the world’s largest producer of oil and gas and the top gas exporter since the mid-2010s. Since Barack Obama’s first term in 2009, U.S. production has increased by a factor of 2.6. It grew by 72% during the Obama era, 25% during Trump’s first term, and 21% under Biden’s administration. This dynamic allowed the U.S. to surpass Saudi Arabia and Russia to become the world’s top producer since 2017. In 2024, the U.S. produced an average of 13.2 million barrels per day, and each additional barrel will strengthen its role in the markets.

Is this policy timely for the oil markets?

Trump’s desire to significantly increase U.S. production comes at a time of uncertainty in the oil markets. Since early January, a combination of very harsh weather conditions in the U.S., a further reduction in U.S. oil stocks, new sanctions on Russian oil, and a downward revision of oil surplus forecasts for 2025 by the IEA have significantly pushed prices up, reaching six-month highs of over $82 per barrel around January 15. Since then, they have started to decrease, a movement accelerated by Trump’s inauguration and the uncertainties caused by various presidential decrees. The current concern mainly relates to future supply-demand balances in the market. Indeed, in its latest report, the IEA revised down the supply surplus for 2025 (around 0.7 mb/d compared to 1 mb/d previously), citing higher winter demand and a possible decrease in supply in the early months of the year. Furthermore, the IEA believes that enhanced sanctions against Iran and Russia could fully rebalance the market in 2025 by removing these two countries’ production from the markets. Meanwhile, the U.S. Department of Energy estimated in its latest forecast a slightly surplus market, emphasizing the strong current geopolitical uncertainties. Only OPEC predicts a slightly deficit market with a projected demand of nearly 1.45 mb/d in 2025 (compared to 1 mb/d for the IEA and 1.3 mb/d for the U.S. Department of Energy) and a supply projection of 1.5 mb/d. In this context, the consequences of additional U.S. production could theoretically disrupt the market by amplifying the supply surplus.

Additionally, the oil factor cannot be isolated from other current economic issues. On the one hand, the economic situation in China (the main contributor to the growth in oil demand) does not inspire optimism, and on the other hand, the global economy remains suspended by the tariff policy the U.S. plans to implement with its major trading partners. A recent note from the CEPII assessed the impact on GDP and international trade of a 10% increase in tariffs on imports from all countries and 60% on imports from China. In this central scenario, global exports decrease by 3.4% in volume, and global GDP shrinks by 0.5%, which would inevitably affect oil markets and ultimately prices. The calculations also highlight that the two countries most affected by this policy would be China and the U.S., which would completely contradict the interests of the newly elected president, who boasted during his inauguration that: “The American dream will soon be back and prosper like never before.”

Which actors does Donald Trump seek to favour?

Trump’s desire to accelerate U.S. production on home soil has two objectives that also seem contradictory. The first is to reduce energy prices in the U.S. market to meet the expectations of the middle class while benefiting from a potential dividend in the employment market. However, this effect must not be offset by a rise in the prices of other raw materials and consumer goods that would inevitably be affected by the increase in tariffs from Trump’s trade policy. Energy today represents only a small portion of the price index in the U.S. (less than 6.5%), while consumer goods (excluding energy and food) make up nearly 18%. In this context, Trump’s trade policy would entirely counteract his desire to increase his electorate’s purchasing power. Moreover, in a low-price environment, incentives for oil producers would necessarily be reduced! U.S. non-conventional oil producers have historically been very dependent on price signals for their activities. However, the uncertainties raised today by the Trump administration are unlikely to provide a stable context for producers, unless massive subsidy policies (preferential rates, taxation) are introduced. Even though interest rates have decreased in recent months, they remain high, and the Federal Reserve (U.S. central bank) is unlikely to make deep changes given the current economic and geopolitical uncertainties. Finally, U.S. producers could be vulnerable to a reaction similar to that of OPEC in 2014, i.e., an increase in production to lower prices and thus exclude them from the market, given their higher production costs.

Given the contradictions in the policies considered by the Trump administration, it seems that there could be no winners: neither consumers nor producers. The only certainty about these policies lies in the environmental consequences of a pro-fossil fuel policy and the possible outcomes of the U.S. exiting the Paris agreements, with the risk that other countries may follow suit. Making sobriety a major angle of European policies is necessary, but it can only be envisioned in the long term, and Europe will likely have to endure Trump’s short- and medium-term transactional diplomacy and trade-offs. For oil markets, Trump could thus prove to be a merchant of doubt, fueling the fragility and volatility of the markets… Therefore, Donald Trump at the helm of the United States promises a new erratic era for the oil markets!