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A Slower Transition to Renewables May Boost Demand for Oil
With a more Republican-dominated U.S. Congress likely to reduce environmental regulations and accelerate the approval of extraction projects, we could see further increases in oil supplies and a potential drop in prices on global markets. [1] However, Trump’s policy focus on facilitating fossil fuel-driven industrial production could slow the transition to renewables and, in the midterm, restore demand for oil. Additionally, prices might rise due to geopolitical tensions and possible changes in sanctions against major oil suppliers like Iran and Venezuela. Still, the new president’s policy impacts may be constrained by the stability of the global market and the strategic decisions of oil suppliers outside the U.S.
Despite ongoing volatility, this year’s oil price increases have been relatively modest compared to the past two years, primarily due to weaker-than-expected global demand. OPEC+ continues to follow a limited production plan to raise prices, though this strategy has yet to fully materialize. As of November 4, 2024, OPEC+ extended these production limits into early 2025. Brent crude oil futures traded between $73.60 and $76 per barrel in the week of the presidential election, while WTI oil prices briefly dipped below $70 before stabilizing at around $72 per barrel. On Monday morning, both contracts saw a significant price drop as the storm threat in the U.S., with the potential to disrupt supplies, subsided. Investors were also disappointed by Friday’s information regarding the extent of government stimulus for the Chinese economy, as it reduced demand outlooks, considering that China is the world’s largest crude importer.*
Source: investing.com*
Strengthened LNG Exports
Similar to oil, Trump’s reign may lead to higher liquefied natural gas (LNG) production and reduced regulatory obstacles for pipeline construction. The new president is expected to promote LNG projects and expedite approvals, which could strengthen U.S. exports. Although price increases could occur in the medium term, lower methane emission standards could reduce the U.S.’s competitive edge in markets with strict emissions standards. Additionally, the global LNG trade could face complications from the aforementioned sanctions on Iran.
Continued Potential for Gold Price Growth
Anticipations surrounding the new presidential administration have led to a surge in the U.S. dollar and U.S. Treasury yields, pressuring gold prices downward. Trump’s policies may induce higher inflation and weaken the dollar, potentially supporting gold’s growth. [2] Geopolitical tension, which continues to sustain high demand for this commodity, also contributes to this trend. The Federal Reserve recently provided some support for gold by cutting interest rates by 0.25% on November 7, 2024, though long-term investor outlook remains cautious. Gold reached record highs of nearly $2,800 per ounce before the election, driven by uncertainty. Other precious metals, such as platinum and silver, also saw losses after the elections, erasing their gains from the previous few weeks.*
Source: investing.com*
The yield on 10-year U.S. government bonds over the past 5 years: https://www.investing.com/rates-bonds/u.s.-10-year-bond-yield
The development of the spot price of platinum over the past 5 years: https://www.investing.com/currencies/xpt-usd
The development of the December 2024 silver futures contract price over the past 5 years: https://www.investing.com/commodities/silver
Long-Term Potential for Copper
Eased regulations may foster growth in industrial production and infrastructure projects. Copper, which has seen substantial price increases in recent years due to its use in modern technologies, reached over $5 per pound on the COMEX exchange in May of this year. Although prices had fallen around 15% by November 11, 2024, this drop could be a short-term fluctuation amid a strong long-term trend.* Increased industrial activity is expected to further boost demand, and intensified investment in projects requiring large amounts of industrial metals may emerge as part of Trump’s agenda to support domestic manufacturing capabilities.
The Trump administration has also promised to support domestic mining for critical minerals, including copper and nickel, to reduce reliance on China. An example is the planned resumption of copper mining in Minnesota, halted by the outgoing administration for environmental reasons.
Source: investing.com*
Conclusion
The newly elected U.S. president, Donald Trump, may bring both opportunities and risks. Investors could potentially benefit from rising energy commodity prices, such as oil and natural gas in the medium term, while gold might continue to reach new highs next year. In the case of industrial metals, long-term growth could be anticipated, as short-term prices heavily depend on fluctuating demand. [3] These projections are based on actions from Trump’s previous administration and his campaign promises.
David Matulay, analyst of InvestingFox
* Data relating to the past are not a guarantee of future returns.
[1,2,3] Forward-looking statements represent assumptions and current expectations that may not be accurate or are based on the current economic environment, which may change. These statements are not guarantees of future performance. Forward-looking statements inherently involve risk and uncertainty because they relate to future events and circumstances that cannot be predicted and actual developments and results may differ materially from those expressed or implied in any forward-looking statements.
Warning! This marketing material is not and must not be understood as investment advice. Data relating to the past are not a guarantee of future returns. Investing in foreign currency may affect returns due to fluctuations. All securities transactions can lead to both profits and losses. Forward-looking statements represent assumptions and current expectations that may not be accurate or are based on the current economic environment, which may change. These statements are not guarantees of future performance. InvestingFox is a trademark of CAPITAL MARKETS, o.c.p., a.s. regulated by the National Bank of Slovakia.
Sources:
https://oilprice.com/Energy/Crude-Oil/Why-OPEC-Delayed-Its-Planned-Oil-Production-Increase.html
