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Your guide to what the 2024 US elections mean for Washington and the world
What happens when the world’s largest oil producer does everything it can to increase production just when the appetite of the world’s largest oil importer may be peaking? Demand from China, which has accounted for half of all global oil demand growth for three decades, shows signs of slowing. leveling thanks to the slowdown in economic expansion and a momentous shift towards green energy and electric vehicles. Meanwhile, returning US President Donald Trump declared a national energy emergency aimed at boosting fossil fuel production and began reversing the Biden administration’s green agenda. In theory, this dynamic could lead to a glut of oil and a drop in prices. The reality is more complex.
The divergence between the United States and China has its origins in competing visions of energy security. Beijing’s embrace of renewable energy reflects less of a noble conversion to save the planet and more of a strategic determination to reduce dependence on imported oil. On the contrary, along with the popularity of its “drill, baby, drill” mantra among consumers who oppose the costs of the green transition, Triumph does not want the United States to depend on a green energy supply chain dominated by china.
Trump’s pick of the Treasury Secretary, Scott Bessent, suggests that the United States can produce an additional 3 million barrels of oil equivalent per day by 2028. Over time, there may be room to increase production of natural gasthat the president is eager to export to europe. However, despite all the rhetoric and deregulation, US oil production (which at 13 million b/d is already a record for any country) will be much harder to raise. Producers are unlikely to boost drilling much at current US benchmark prices of around $75 a barrel; to recent survey found that oil groups needed a price of $65 to make drilling profitable and $89 to justify a substantial increase.
At the same time, exports from some other suppliers may fall, thanks to US actions. The outgoing Biden administration this month imposed new tough sanctions on Russian oil, which according to some estimates could remove up to 2 million b/d from the market. The new president of the United States threatened this week with go further unless Vladimir Putin reaches a deal to end the war in Ukraine. Tougher U.S. measures to restrict Iranian exports, in line with Trump’s first-term approach, could take hundreds of thousands more barrels a day off the market.
This would open up a potential opportunity for the world’s swing producer: Saudi Arabia; The OPEC consortium has been holding back planned production increases for months to balance the market in the face of the fall in Chinese demand. Trump’s program could then lead, ironically, to Saudi Aramco, rather than American oil companies, turning on the taps. (In his speech to the World Economic Forum on Thursday, the US president explicitly stated called OPEC to bring down world oil prices). For Trump, this could create room to pursue his geopolitical goals without driving up prices at the pump. Even if American oil producers don’t end up increasing their own production much, they will be happy to see Trump act to stimulate demand, for example by cutting incentives to switch to electric vehicles.
Indeed, Trump’s “drill, baby, drill” slogan seems intended to give confidence to oil and gas producers, not only in the United States but in much of the world. It symbolizes his intention to eliminate regulatory controls and environmental, social and governance investment principles that have limited the industry in recent years, and his repudiation of efforts to curb climate change.
It is difficult to see how such efforts can succeed without a major global shift toward electrical energy from green sources. Although it still burns a lot of coal, China’s shift toward green energy seems, then, a bet on the future, while the United States is betting on the status quo. There may be compelling reasons for Trump’s America to make that decision. But the consequences could be that the United States will be left on the “wrong” side of history and that the existential battle to contain global warming will take a serious blow.