While U.S. President-elect Donald Trump advocates for increased investment in fossil fuels, his proposed tariff policies may hinder the industry's growth. Francisco Blanch, a strategist at Bank of America, suggests that oil and gas prices may decline during Trump's administration due to high tariffs.
Blanch indicates that the proposed tariffs could suppress global trade, reducing oil and gas prices. Trump's policy of "America First" implies a secondary priority for commodities. His proposal includes tariffs of 10% to 20% on all imports, with a higher 60% tariff specifically on Chinese goods. These tariffs could escalate trade tensions, potentially slowing economic growth, increasing inflation and interest rates, and ultimately dampening demand and prices for oil and gas.
Blanch also notes that Trump's tariff policies might affect U.S. oil and gas production. Although his position to ease regulations and support fossil fuels should theoretically boost production, the potential for lower prices due to tariffs might weaken the incentive for producers to drill more. Despite the promise to reduce energy prices by expanding oil production and simplifying pipeline permits, the risk remains if tariffs lead to a trade war, posing a major downside risk to global oil and gas demand.
U.S. oil production has already reached historical peaks, with output hitting 13.4 million barrels per day in August. Yet, the potential for geopolitical tensions, such as those in the Middle East and Ukraine, presents an upside risk to commodity prices. Blanch highlights that strict sanctions on Iran and Venezuela during Trump's first term could return, especially with Marco Rubio's potential role as Secretary of State, which may elevate oil and gas prices if new sanctions are imposed.
