What can Trump do about the price of oil?
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pushin. Donald trump wants to make amErica great again by cutting energy Prices in half. He has said this repeatedly on the campaign trail. Oil is the most important commodity in the world.

If trump kits is wish, IT will matter for markets and economies the world over today on the show, how low can oil go this is unhedged, the markets and finance podcast from the financial times streaming to you from beautiful on head headquarters in new york city. I am rob armstrong, impressario of the unhedged newsletter and sometimes host of the show. I am joined by my trusty lootenant eden writer, who is just written a newsletter on this very topic.

What do you attend? Say a whole.

I have you clearly, you don't have a military background. I do not. yeah. Anyway, you salute smartly when I walk into the room or something. Ain oils is seventy two, seventy three dollars.

That's kind of middling compared to what's been over the, you know, recent years in them, just like the middle of its decade range, something like this. What has to happen for that number to fall by half? And then after we discuss that, we can discuss what will have if that happened.

There's a lot that has to happen, right? The oil market is famously global, is famous ly, relies on geopolitics just as much as relies on market movement. And really, supplying demand is a big part of the picture.

Yes, of course. So everything yeah.

there a lot of things have to happen for oil to go by half, which is probably have about like, but what trump says, yes, also, we should probably know trump is not the only person who want to. American president has often wanted cheap oil.

and we, even president biden, wanted cheap oil. There was a lot of action and rhetoric about Green energy, but the fact is that under his administration, domestic production of petroleum rose a lot and hit new house. In fact, yet not only did he loosen up the reserves.

the treasure department worked really hard to make sure that russian oil, which no longer was going to go to U. S. In europe, s, so had a place to go to. So the entire oil market won't include.

yes, so so everybody wants IT.

It's good retail politics, yes. And IT arguably played a big role and maybe even a bigger role .

in how people .

see inflation. yes. So joe hansie, who is the person who publishes the michigan consumer indexes ea grade paper, where she's like a lot of the reason people think inflation was worse than IT was or is still bad consumers and have been still low when inflation came down was because they were really annoyed about gasoline.

Yeah I mean, a wise friend of mine once said, when you ask joe or je six back on the street, you say, how's the economy? You're really asking them to questions. This is what they hear.

When you ask that question, they hear, do you have a job and what is the gas Price? I think for many people, that is the economy in a certain way where everybody cares about their job and americans are driving country. So the gas Price is crucial to people's psychology. And their psychology about inflation is especially .

driven by an shoes. Paper shows that it's even more so now people care about a lot more than they did .

in previous cycle. This has become more sale. Very interesting. This is about why, that is why people care more, is a great .

paper would encourage people read in. Part of IT might be due to social media and how people engage with the news. Part of IT might just be this unique moment of post code.

And we are things going on in the cycle. Yeah yes. So it's it's always in silent and IT might .

be even more more silent now. okay. Now I want to hold on this thought a little bit because inflation is so important here.

Now we are nerds. We are proud nerds here, abed. And one thing we nerds know is that when inflation is measured officially, IT is measured as core inflation, excluding food and energy. So you might say actually, IT doesn't matter to inflation or headline inflation or inflation as we measure IT what oil does.

right? Yeah, but you know oil has oil in everything. Energy affects everybody.

Everything that will affect the Price of all other goods because everybody has to use oil to to make they make or there's a complicated relation tween oil, fertilizer and agricultural that goes into food. yes. And yes, food is also stripped out. But at the end of the day, the fed and other central banks are Operating both in the actual core, but they also want to have the public approval to take the action needed. And the people are really, really mad about oil Prices, about gas Prices.

They lose some of doesn't matter what adjust the core personal consumption expenditure inflation means if the whole country is pissed off.

absolutely. And as we saw in this election cycle in the U. S. And around the world, politics is completely linked to how people feel about the economy. Write every incumbent party law seats.

and inflation, in particular.

for absolute .

electoral on, okay, so we know people care about IT. We know IT is important. actually. Let me pause here again. If gas Prices, oil Prices, electricity, this energy Prices fall by half, does U, S, G, D, P. Go up or down, all else being equal, it's complicated.

So what things have .

changed to you with your complexity?

If things have changed in the past couple years now that the U. S.

Is in net exporter? yes. So did that happen? When did the us. Become a net energy exporter. That is like in the last couple of years.

I think twenty, twenty three was the actual year. But at some time in the last two years, yes. But you know now we're exporting more than we are importing. That's great for the U. S.

And you regional security, it's but in terms of GDP, it's kind of complicated IT, right? Because if you have lower oil Prices a that then impacts the earnings of so many of those oil companies, IT could also impact the investment that they put into the U. S.

Economy to get more oil out and also would impact the trade deficit. But you see theoretically in the past has been an empirical link between o cheaper oil Prices because much cheaper to build form manufacturer more so IT helps your economy. So in the us.

Now it's not so clear. yes. I think on average, you could say a good thing, yes, but part of that might just get the perceptions .

and we just go out and IT is from the point of view of the voter again to return to the retail politics side. It's like a tax cut. Yes, right. We were talking the other day the average american drizzle teen thousand miles a year. Do you can do a little math there and it's, you know miles per gallon in your car times the gas Price, times how much the gas Price polls and you have a dollar value that's a five hundred dollar tax cut yeah.

same thing goes for heedin their houses. And this is an area where in inequality is especially palpable, right? Yes, if you are on the lower end of the income spectrum, more of your budget is going to those essentials. You not hit your house or not drive a hard to get to work whereso IT really is especially silent and really important to make sure that lower income houses have access to this .

at a cheap Price. Interestingly, IT is not a clear plus, like when I coming up as an analyst and as a financial journalist, that used to be that the oil Price was just a plug into your GDP model in a lower Price cement, high gp. But as of a couple years ago, not true anymore.

It's interesting how things change. okay. So now we've established lower oil Prices, energy Prices, gas Prices, electricity Prices are good for retail politics.

They are good for the perception reality of inflation, and they are probably on net good for the economy. But it's somewhat hard to say what has to happen for trump to get thirty six dollar oil or whatever. His goal is one quick .

pause there and that he said he wants energy costs to be lower. us. Oil goes heavily into manufacturing, but natural gas is a big part of the utility grid.

The energy grid, fair enough. It's it's complicated. We should just briefly say nature gas is a weird thing that comes out of the result of know, getting oil out. We actually have a huge surplus in the us. Thing is we just have a bad grid and bad pipelines to extract that.

So that is actually an where investment could matter, right, if we get a Better infrastructure, natural gas infrastructure that could drive that Price down.

Yeah but according to golbin sax, and right now, U S. Is either important from canada or let's go it's not really going across the atlantic. Yeah according to golden sacks, a lot of the natural gas companies are starting to build terminals imports in europe so they can start exporting and taking the advantage of the higher Prices in europe that would bring U. S. Supplied on and could bring Prices up.

And yeah, it's interesting. There's a lot of puts and takes you. You hear numbers about what one of these natural gas terminals costs and how long IT takes to build.

And it's like a thousand years in a kaji lion dollar. So this is a kind of a long cycle investment. okay. So having made our aside about natural gas, what can trump do to actually help the Price of energy fall? So as we said before.

oil is such an incredibly international market and realize on supplying demand. And so there's a lot of out of his control. But I would think there are two things that are probably in his control.

The first is how he responds to the more n middle st, of course, the war in middle east is a complicated thing. He's not going to have all the levers that is disposal. interesting.

Ly, and this is notice by multiple analysts, the oil market is kind of learn to shrug off the israel mons war and its impact on oil. You know, the oil Price would jump when the brinkmanship between israel, iran, but for the most part, it's been like a low summer, even though the conflict has been pretty hot. So IT hasn't not a huge impact, but the iran question could make things worse.

So if trump's reign policy is if he tries to get to cease far and he does so and know negative impacts, iron and then you get brick and ship that could bring up oil Prices. But that's not totally in his control. What isn't his control is how he sanctions around.

Yes, iran has an output of about a million barrels a day. Yes, he in the last administration, he tention that oil and you know, tried to crack down that oil. If you do so again, you could see a million version of oil, which is about one percent of the market.

come out of protect. This is just a fascinating area where markets, domestic policy and foreign policy all point in slightly different directions. So domestic policy. Cheap energy foreign policy, are we want to be strong on a ran, right? That's been his position.

You but if you are strong on iran, if you sanction iran, the oil Price goes up, the oil market tightens and you've defeated part of your domestic agenda. solo. So this is a puzzle for a statement .

to israel, palestine, lebanon. It's complicated to begin with. So even the micro thing he does there could enrage on on either.

okay. So let's turn to russia.

Russia is not that big of an impact on the oil market, right? When the work kit off, of course, IT surge energy Prices. A lot of that from analysts we spoke to was more about distribution and trade.

Russian oil is kind of found a home in india, in china. So the impacts on the oil market are probably negligible. If anything, that will bring crisis down a little bit because IT will make some trade things easier and lower the cost of transport.

IT could impact the natural gas market. Is my understanding? yes. right. So if whatever ceasefire trump is trying to get because clearly he's trying to get one, it's prior, it's a high priority if it's perceived as good for the E, U, E U country is might be like, okay, maybe we'll stop winning off russian natural gas, which we've been trying to do.

And then that affects the natural gas Price IT that goes down europe and maybe distance antivirus producers from exporting so much to eur. Yes, so that brings natural gas down in the U. S.

Politics washers tell us low oil Prices are an incredibly high priority for the White house. And it's interesting how, if that's true, they have a very strong incentive to get these war questions .

off the agenda altogether and go easier .

on russia.

Yeah again, not the flow through oil is not so clear. But you know, helping E, U. Get what they want out of a russia ukraine deal would help natural gana. Theoretically, that's not a guarantee.

Other one that he kind of kind control is venezuela first term was very hawkish on vane's ua, uh really, really took a lot of financial sanctions on the venezuelan state owned oil company. Uh, biden has kept most of lives in place momentarily reverse them. It's about a million barrels today.

Again, one percent of the submarket. If he goes harder on venezia a that could make things worse. But again, he is concerned about immigration, or you know, really want to stop immigration.

If you tighten the screws on venene zuela s economy that makes immigration out of venezza ela into the U. S, by extension, potentially worse. So he might not want to freeze them as hard.

It's hard to be president. So where the strong have to get lucky, what are the things about energy that trump does not have a lever to pull?

Open class, yes, is probably the biggest shadow on the market right now. There is been voluntary production cuts from sadi ababa, its allies in the block. They have had trouble getting people to abide by those cuts.

And now saudi arabia, which kind of lead the block in the U E, are kind of getting the worst of both worlds. Ah it's cheaper oil because places like iraq and coastal or producing more and they're losing market chair steadily, especially as the U. S.

And other economies make more oil. Those production cuts have been extended to twenty twenty five. A lot of analysts believe they are going to praise them out over the course the next year.

Plus they're still definitely like A A floor they're protecting. But those voluntary extra cuts could go away. Yes, that's potentially up to six million years a day. yeah. So if they start ramping up because they want to protect the market chair that really brings oil down.

okay, I will pack plus what's next.

And then there's just global growth, yes. So you know, we have somewhat of winning globe growth in the last few years that depresses oiled demand. Oil demand is still at all time high, but it's slowing its growth. The directory is going down and is expected to go down.

I mean, to click you always here when you mention the oil market, anyone wall street is you're the marginal barrel of oil gets bought in china yeah. And the first thing you know oil analysts talk about is how is china gonna and the news out of china lately?

Not so great. Not great. A lot of people think that chinese oil demand is gone to pick next year and then start pluming, partially because growth, partially because they have .

great electric adoption electa OK.

So doesn't like control. Now terf s could play a roll. Now, a global growth slow down a lot because of terabits.

Then you could really get a huge, and that a trade war, a proper goole fashion nineteen nine thirty style trade war, would give us much like a low oil Prices, oil Prices, or theoretically.

everybody has to replicate things they are doing in other economies. So they have to buy more oil than I have up Price. It's complicated also, if things slow down so much that theoretically, oil Prices would help bunch of economies heat up again. Yeah, it's just like this. But I, on average.

global growth. And of course, an important aspect of all this, and one that the trump administration to be emphasizes, is greater production from the united states. So Scott presents famous three, three, three, reduce the budget deficit to three percent, three percent economic growth and three billion more barrels a day of domestic oil production. How does that three million barrels play into this picture yet?

I mean, three million barrels is it's a lot. That's two cent. It's a twenty five percent increase on and that's a big increase. Chunky, chunky. And you know part of that is he's going to deregulate things, allow more drilling.

You might get some just from the more drilling, yes, but it's unclear what the deregulation would do ah and at the end of the day, they think that controls whether U. S. Producers make more oil.

Is the Price of oil, yes, and thirty six dollar oil not gonna a get IT.

So gonna get IT. The U. S. Break even average across the U. S. Average is a right sixty five dollars for Better. So if that goes below sixty five, you're not going to get a lot of investment companies I made.

Of course, there is a huge amount of variation ah in the plenty of U S. Oil producers who can make money at even in the thirties, probably.

but there's a lot who can't anthea's ticals the deregulation and your he picked a shale guy to be the sector of energy so they could try to bring down that break even cost. Yes, but at the end of the day, sixty five is still the average.

yes. And and you know sub forty oil rigs are going down now.

So he might get his goal. But if he gets that goal, it's onna undercut his yes.

Again, the presidency, a painful exercise in hard choices for every president. So it's prediction time aten in the case where everything goes in the direction of cheaper oil, that is global slowdown, no sanctions on iran, no sanctions on venezuela, peace deals, ceasefire is whatever get signed both in middle east, stand the ukraine. Everything we've disgust goes the cheap oiled direction. What is the low oil Price we're going to see in the next four years?

The absolute low, you know, directly, that brings on seven percent more of oil production that so possible deal demands.

Now, for context, for context, in the depth of the covered crisis, oil hit about thirty two. There was kind of a micro energy glut crisis mess in two thousand sixteen. We got down into the thirties then as well. I mean, I don't think .

I can go as low as authorities because I won't necessary be a crisis, but I can see IT going forty fifties.

Yeah, what about you? I'm taking the under on that one. I think you know if if all the issues we went through fly in the chea boil direction oil with three handle make sense to me. And on that point of prognostication, we will be right back with long and short.

Countries in europe provide a lot on the freedom movement, with recent concerns about their politics, but also security. We show some of the countries imposing controls that may become a feature for this new landscape of global trade, or this regional trade.

to learn more about the micro economic and investment implications of geopolitical risks. Subscribe to p gms. Be out thinking investor in your favorite podcast, APP listeners, welcome back. This is long, in short, that part of the show where we go long, things we like ensure things we don't like. Eden, are you long or sure something?

Yes, i'm long. Parliamentary democracy. Been quite a week for parliamentary democracy.

yes. IT. So you martial .

law was called in korea. And then interesting. Ly, the parliament just voted IT down.

And then a kind of is died. Yeah, same thing, you know, in france was voted out by parliament. You can not like some of these developments. You can like some of these developments.

but parliament's democracy is at IT. And markets like parliamentary democratic, european and korean markets took this turbulence in stride. Because parliamentary democracy, one I have a somewhat more trivial, but still very strong.

short. I am short for brunch. This is a long standing grudge of mines .

like a twenty twelve bridge.

I hate brunch. It's the wrong time of day. IT costs way too much money.

All the places you would have in in new york city, you have to wait in line. IT is the worst. And here's my proposed solution to this problem.

We should just pass a law that means you have to call brunch over Priced breakfast and IT just just illegal to say the word brunch. All you can say is, let's go out for over Price breakfast. I mean.

the way I approach that is great or wake up late and then just have a really big meal for my brother st in my lunch. And at the end of day of cost savings there in the economies of kind of cheaper than two meals.

I guess that sounds like aid and secretly likes brunch openly. You're fired. On that note, listeners will be backing your feed on tuesday.

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