Trump’s contradictory stance on oil – Business

With the advent of the second Trump era last Monday, uncertainty has engulfed the world on various fronts. And the world of energy is no exception. Within a week of taking the oath of office, President Donald Trump has rattled the energy markets.

Moving on his campaign mantra, ‘Drill, baby, drill,’ on his first day in office, he signed an executive order promising to “unleash America’s affordable and reliable energy and natural resources” by expanding drilling on federal lands and the processing and refining of raw materials, including critical minerals. He also declared a “national energy emergency” to fast-track energy projects. “We have more oil and gas than anybody,” he said, referring to it as “liquid gold under our feet”. He now wants the oil majors to unearth them and at full speed.

In the same breath, President Trump also announced pulling the US out of the Paris Climate Accord, redirecting the government’s efforts towards fossil fuel. He also withdrew governmental subsidies on electric vehicles. To the joy of the car manufacturing sector, he curtailed many powers entrusted to the Environmental Protection Agency.

He also began his first week in the White House, emphasising his tariff threats on all imports from Canada, Mexico, and China. These pronouncements by the new US president are unsettling to the long-established norms of industry.

Industry experts believe the US president’s push for the Opec+ alliance to lower oil costs conflicts with his plans for an energy-dominant America

President Trump’s tariff threats were not out of the blue. He had announced taking the tariff route months before his inauguration. In fact, to the relief of some, the tariffs were not slapped on the first day of his presidency. There are now speculations that tariffs, especially on Canada, the largest crude exporter to the US, could be slapped on from Feb 1.

A few days later, he was even blunter: While addressing the World Economic Forum in Davos remotely, President Trump highlighted that America doesn’t need Canada for critical imports, though not everyone agrees.

Richard Masson, an executive at the University of Calgary’s School of Public Policy, suggested President Trump needs a reality check: “They do need our [Canadian] oil. We ship diluted bitumen, so four million barrels a day go to the states; more than 2m barrels a day of that is diluted bitumen. It goes to refineries specifically configured to process it, especially in Minneapolis, Chicago, and Wood River.”

Analysts believe a tariff on Canadian energy exports will increase domestic US gasoline prices and threaten President Trump’s plans for “energy dominance.”

During his virtual appearance at the annual World Economic Forum in Davos, President Trump also called on the Organisation of the Petroleum Exporting Countries (Opec) member states to slash oil prices to get Russia to the negotiating table and bring an end to the war in Ukraine.

“I’m also going to ask Saudi Arabia and Opec to bring down the cost of oil,” he announced. Blaming the Saudi-led Opec for the continuation of the war, he added, “You’ve got to bring down the oil price; you’ve got to end that war. They should have done it long ago; they (the Saudis and the Opec) are very responsible, to a certain extent.”

Opec’s response to the demand is currently not known, and to be fair, it is difficult for them to give a response publicly. Yet, the fact is that oil producers are in desperate need of additional revenues. The oil prices required to plug their budgetary deficits are considerably higher than the current market prices. For them, swallowing this bitter pill of increasing output and reducing the prices remains difficult if not impossible. Furthermore, this would also end its oil partnership with Russia, which Saudi Arabia and its allies in Opec honour a lot.

Industry experts believe that President Trump’s push for the Opec+ alliance to bring down the cost of oil also conflicts with his plans to make America energy-dominant.

“The US energy dominance agenda is mutually contradictory with ‘Opec, lower your oil prices’,” Heather Exner-Pirot, an adviser to the Business Council of Canada, told the Canadian Press. “There is no coherency or consistency in what he’s saying on oil markets,” she said.

“It will be no easy task to convince Opec to increase output,” Warren Patterson, the head of commodities strategy for ING Groep NV in Singapore, told the media. “Lower oil prices would also be an obstacle to significantly increasing US oil production.”

Lower prices would displace American supply, which is much costlier to produce. American producers are close to breaking even with oil at $70 per barrel. They would want prices to go up if they were to increase drilling.

All this has led to a sense of gloom, and markets have taken the cue. Ending four straight weeks of gains, Brent lost 2.8 per cent last week, while WTI was down 4.1pc.

President Trump is in a rush. He has opened too many fronts. Many of these are at times contradictory to each other. Oil markets will need some time to decipher the direction of the new policy. Until then, confusion and chaos could prevail in the markets.

Published in Dawn, The Business and Finance Weekly, January 27th, 2025