Energy Prospectus

Notes below are from HFI Research the morning after Trump's victory. My comments in blue.
Keep in mind that Trump can't do anything until he officially becomes the president in January.
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For the oil market, we see several key policies that will impact global supply & demand balances:

> Trump will reinforce sanctions on Iran leading to a loss of ~1.2 million b/d of production.
< Trump may also work with Israel to make sure Iran never gets nuclear weapons. A war between Iran and the U.S. should not be necessary if the "Supreme Leader" of Iran can be convinced we mean business. Biden's appeasement policy was never going to work.
< Trump may also enforce sanctions on Venezuela. I also hope that he helps that poor country. Poverty is widespread in Venezuela. I was there over 30 years ago and the standard of living was terrible. With Venezuela's massive oil reserves there is no reason its people should be forced to live in poverty. The U.S. needs their heavy oil.

> Trump will encourage OPEC+ to increase production by the amount Iran loses. < Saudi Arabia will be glad to help Trump restore peace to the Middle East.

> The Trump ceiling (OPEC+ ceiling). < No sure what this means, but Trump knows the global economy needs a stable oil market. U.S. oil production does not have much upside, so we need good relations with Saudi Arabia.

> Trump will encourage US producers to produce more, but government policies will be extremely limited. < During Trump's first term the "Shale Boom" was in the early innings. "Drill Baby Drill" will only happen with higher and stable oil prices.

> Trump will end subsidies for electric vehicles, which will slow EV growth. < Amen!

> Trump may end up making a deal with China that supports global growth (big question mark for now). < We need fair trade agreements with China. Trump will be much better at negotiating trade deals with China than Biden was. Biden didn't even try. Foreign policy under Harris would have continued to get worse.

In total, we expect Trump's policies related to the oil market to be neutral to slightly bullish.
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On the natural gas front, these are the most meaningful ones:

> Less government subsidies on renewable projects would increase power burn demand needs from natural gas.

> Reversal of Biden administration policies on LNG export ban. < Super bullish for U.S. natural gas market. We need more LNG exports to restore some level of balance to our trade deficit.

> Drill baby drill, but this will be limited by market factors more than government policies. < Less government blocking of pipelines and other infrastructure will help the industry and create a lot of high paying jobs. Trump should approve and fast track completion of the Keystone XL pipeline on Day One.

In total, we expect Trump's policies related to the natural gas market to be net bullish. < I agree 100%, but a normal winter will help a lot more. Beyond 2024 the outlook for U.S. natural gas prices looks bright.
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PS: A few more things that I believe Trump will do
> Negotiate peace between Russia and Ukraine. This will save a lot of lives and help Europe economy.
> Refill the U.S. Strategic Petroleum Reserves (SPR). We need it for national security, and I would have no problem using the SPR to help stabilize global oil prices.
> Pick smart and highly qualified people as cabinet secretaries. Stop the DEI madness.
> The Green New Deal is a terrible idea. Work with people in the energy sector to come up with a national energy policy that makes sense. We need all forms of energy to meet energy demand and wind & solar are too unreliable to be a high percentage of our electricity supply.
> STOP using FEAR of Climate Change to control the people. Get all Climate Change Wackos out of our Department of Energy.

President Trump is good news for all of our Canadian companies because finishing the Keystone XL Pipeline will de-bottleneck Western Canada allowing Canadian companies to get better prices for their oil.

From one of our very smart EPG members:

Outside the Democratic party itself, arguably the biggest impact of this election result will be felt in Europe, indirectly through Ukraine with perhaps a more muted impact on the Middle East, though with potential for Trump to have a calming effect on Iran.

On European macro, I think tariffs must be the strong base line, followed likely by retaliation or some sort of managed trade deal between the EU-Trump a’la US-China in the first Trump administration. Here, the only thing EU could likely agree to buy from the US is likely weapons for Ukraine (even more LNG is not likely to do it). This situation will make many in Germany uncomfortable, as especially large parts of the SPD will feel that extra government spending should be spent on welfare, rather than weapons. On the other hand, Germany is uniquely exposed to US tariffs, so will have the biggest incentives to cut a deal with Trump. Essentially all the other traditional EU frugals are among the Ukraine hawks in Eastern Europe and among the Nordics and Netherlands. As such, I see this as arguably the only way for Europe to avoid having to retaliate against Trump tariffs.

The ECB will face a dilemma, as tariffs will be both inflationary and lower euro area export oriented growth (further), plus there could be a dollar-euro exchange rate effect partly offsetting tariffs. Macro effects hence run counter to each other and we do not know in advance which one dominates. As such, I don’t think this materially effects ECB near-term thinking, apart from if unexpected confidence effects emerge (certainly negative) – they will continue to cut gradually through 2025, but as discussed earlier now in my opinion seem even more likely to drop below 2 percent (too high a neutral rate anyway IMO) in 2H 2025.

Fiscally, it is likely to take a bit of time before higher defense expenditures in the EU – which seems certain – feed through budget likely in 2026-27 onwards. Additional common funding for Ukraine, as well as possible outright confiscation of Russian frozen assets, seem likely in the coming years.

Ukraine especially undoubtedly the uncertainty has increased a lot, but as I mentioned before Trump will not be able to stop the war on his own, as Ukraine is funded into 2026 and seems likely to get quite a lot of US weapons shipped before Jan 20th. They can in other words fight on for quite some time yet.

Per above, it seems probable that the EU will have to come together and offer Trump some sort of deal on this, and essentially buy the weapons needed in Ukraine from US manufacturers – this would also mean a reduced trade surplus etc., so might also help on the trade front. The big question is what Trump will do once he realizes that he cannot stop the war “by decree” – active attempts to undermine Ukrainian war effort will be interpreted as an effective undermining of NATO across much of the EU (and likely Asia). EU will have to come together very soon – starting this week at a summit…. in of all places Budapest…. We shall see. This has likely lowered the risk of an early German election, as Berlin digests their political shellshock. Scholz is less likely today to pull the plug on the government, and certainly less likely to call early elections, implying that a deal is cut in which Lindner gets a little extra money towards his priorities (he already secured that the €10bn freed up from the aborted Intel chip plant is used to pay down debt, rather than other public investments).

Everyone in Europe will be looking closely at national security appointments in the incoming administration and what Trump actually says about Ukraine especially – interesting the Russian government was quite uncompromising in its response, so we will see what the actual Trump 2 – Putin relationship will be. Some in Ukraine unhappy with the Biden Admiration’s recent level of military support for Ukraine will view Trump as a risky chance to change the situation in their favor. The EU and NATO are likely to try to keep Trump engaged by playing up the need for his strong leadership in facing strategic competition with China and the China-Russia-NK-Iran (mentioned in that order) axis.

In the Middle East, I think the recent firing of Israeli defense minister Galant by Bibi signals a shift towards more uncompromising Israeli stance in the war. Trump has said he wants an end to the Gaza War soon, but seems unlikely to put a lot of pressure on Israel to get a ceasefire soon, but he as a would-be peacemaker is not likely to condone another round of Israeli strike at Iran, apart from retaliation to Iranian attacks on Israel. Trump could in fact make the probability of another Iranian attack on Israel somewhat lower out of fear that the Trump would arm Israel to hit back much harder (still not oil though). In general Trump’s unpredictability might act as a calming factor on Iranian actions, knowing that no one in Europe will try to intervene this time, given Tehran’s support for Russia.

The real impact of Trump will likely come on how the US will try to pressure Israel to address the longer term situation in Gaza, after a ceasefire is agreed. Here I doubt a Trump Administration would care much about the details of continued Israeli military occupation, so it will offer Netanyahu an easier route to hold his coalition together. This might not be enough to hold it together, as for instance Gallant’s firing was also related to the conscription of Hasidic jews in Israel, something vehemently opposed by Netanyahu’s religious coalition partners. Overall, Trump’s victory therefore strengthens Israel’s hand further, though not to the point of directly committing US forces to attacking Iran, which would be a very non-peacemaking action. Trump, having also promised to keep gas prices low, will similarly not authorize an Israeli strike on Iranian oil facilities.