Former President Donald Trump promised to lower energy prices if he won the presidential election in November.
“By reducing our energy costs, we also reduce the costs of transportation, manufacturing and all of our household goods,” President Trump said at the Republican National Convention last Thursday.
“Drill, baby, drill,” he added.
The problem, according to JPMorgan analysts, is that oil companies may not want prices to fall too far — in fact, such a scenario could have the exact opposite effect to that intended.
“We estimate the equilibrium price for WTI crude oil to be around $70 per barrel, and believe that even at $60, the price is too low to incentivize production, which could lead to a surge to $100 per barrel the following year,” Natasha Kaneva, JPMorgan’s head of global commodity strategy, wrote in a June 17 report examining the impact of November’s “red wave” outcomes on commodities.
Matt Stefani, president of Cavanal Hill Investment Management, agrees that Trump’s promises on energy prices may not come to fruition.
“I don’t think a Trump victory would have a significant impact on U.S. oil production or global oil prices,” he told Yahoo Finance recently.
But the prospect of Trump 2.0 is having an impact on oil stocks, which have rallied in recent weeks as investors pulled out of tech shares and Trump’s approval rating rose.
West Texas Intermediate (CL=F) was trading near $80 a barrel on Monday, while international benchmark Brent crude (BZ=F) was trading just above $82 a barrel.
