Trump vs. Harris on Energy Policy: What’s at Stake for Oil Markets

Trump vs. Harris on Energy Policy: What's at Stake for Oil Markets?

By Sydney CaseyPublished On: October 31, 2024Categories: Daily Market News & Insights

With the U.S. presidential election just days away, oil markets are considering potential policy shifts that could have far-reaching effects on oil prices. The outcome of the election will likely stretch beyond the US border and impact global oil markets. Looking beyond political views, prices are equally shaped by OPEC policies, geopolitical tensions, and economic factors such as supply-demand dynamics that come into play no matter who sits in the White House.

Key Policy Differences on Energy

Both presidential candidates have differing stances on energy, with Trump likely to adopt policies that support fossil fuels and domestic production, while Harris leans towards promoting renewable energy through policies like the Inflation Reduction Act (IRA). Trump's approach could slow the global transition to renewables, potentially keeping demand for oil strong in the U.S. In contrast, Harris's policies may support renewable energy adoption, potentially decreasing long-term oil demand and introducing a gradual decline in prices.

Vice President Harris supports viewing climate change as a crisis and has backed the Biden administration's rejoining of the Paris Agreement after Trump withdrew the U.S. from the agreement in 2017. Trump has expressed skepticism about climate policies, emphasizing traditional energy production instead with his phrase, "Drill-Baby-Drill." This would be encouraged by opening more lands for drilling and supporting oil, gas, and coal projects. Harris advocates pursuing renewable energy through tax incentives and production support, especially for clean energy manufacturing.

Harris also supports EVs through the IRA, which offers consumer tax credits for EV purchases. Trump, however, has criticized EV incentives, suggesting they distort the energy market, though he also expressed support for the auto industry broadly, with room for both gas and electric vehicles.

It's worth noting that, at a crude production level, the US's crude oil production set a record high in the early 2010s under the Obama administration, then continued setting new highs under the Trump administration, and has continued rising still under the Biden administration. American oil producers are creative, finding ways to utilize new technology to continue boosting output when the economic incentives are there.

So, what does the White House control? Most importantly, they set the national tone for energy markets. Many energy projects take years or decades to bring a return, so companies seeking long-term loans must carefully monitor the national dialog to set expectations for demand long in the future. Business confidence in the long-term trends for things like oil demand, drilling permissions, and renewable energy incentives is important for enabling their investment today.

Global Policy Outlooks

Geopolitical factors, especially in the Middle East, continue to play a significant role in oil price volatility. Current tensions, including Israel's response to an October 1 Iranian missile attack, have heightened concerns about potential disruptions to supply. The two political candidates have differed over how best to handle the situation. A Trump presidency may lead to a more aggressive stance in these regions, which could bring the US into an open conflict with Iran. In contrast, Harris may focus on a more indirect intervention, which may keep the US out of a direct conflict. Either way, the world will be watching to see what disruption occurs for Iranian oil supplies.

U.S.-China economic relations, a significant factor in global oil demand, could also be impacted by the election outcome. Trump's history of strict trade policies could lead to tensions with China, potentially reducing US demand for their products and lowering their economic growth. With China's economic growth already slowing, the International Energy Agency (IEA) and OPEC have revised their oil demand forecasts downward for 2024 and 2025. Reduced demand would mean lower oil prices globally, but it also presents risks for economic spillover to other countries. A Harris administration would likely continue with our current approach to China-U.S. relations.

OPEC production quotas are a vital lever in balancing oil prices. During Trump's presidency, he was openly confrontational towards OPEC, leading to some tensions over their supply strategy. Since then, OPEC's quotas have become a bit more challenging for the US to influence, with a notable announcement from the cartel to tighten the market before the last midterm election. Some political analysts believe that if Trump can pull off a "drill baby drill" domestic production boost, it could lead OPEC to respond by flooding the market with supply to maintain market share. On the other hand, Harris's approach may be less directly targeted at OPEC, leaving the group to its own devices while focusing on a renewable transition.

The election also comes at a time when global oil demand, while strong, is showing signs of slowing as it adjusts from post-pandemic highs. China's ongoing fuel glut, combined with the impact of new mega-refineries, has led to lower profits for Chinese refiners, with domestic oversupply cutting into export opportunities. Reduced refining runs across China, as local refiners adjust to the slower demand, may add to the global price instability in the months following the election.

While the election may provide clarity on the direction of U.S. energy policy, it's just one of many factors contributing to oil price movements. While the president can influence oil markets somewhat from the office, they are more likely to move prices through the other actions they take - economic, geopolitical, and more. The Federal Reserve's interest rate decisions, ongoing geopolitical risks, and trade relations will all play into oil price stability.

The 2024 election has widely been heralded as the most important in our lifetimes. Still, fuel market dynamics are highly complex. No single event - even one as big as the US election - will fully decide the future of energy prices.

This article is part of Daily Market News & Insights

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