Dr Ayed Al-Qahtani, Director of Research Division at OPEC, delivered a
presentation sharing OPEC’s most recent views on global energy and oil
markets at the 15th IEA-IEF-OPEC Symposium on Energy Outlooks in Riyadh
Saudi Arabia, February 19, 2025 [photo credit: OPEC]
Ironically, if OPEC+ were to do Mr. Trump’s bidding it would
seriously impair another ‘pipe dream’, i.e. US Treasury Secretary Scott
Bessent’s target of adding 3 million barrels per day
(bpd) to US oil and oil equivalent output by 2028. This is not
completely inconceivable if one considers the scope for expanding LNG
exports — see for example Mr. Trump’s (so far, unquantified) ‘deal’ with
Indian Prime Minister Narendra Modi last week and the EU’s tentative promise to buy more US gas in an attempt to head off trade tariffs.
However, even Mr. Bessent concedes that a major objective of this
target is to bring down energy prices generally, which is where we again
hit Catch-22. In the 7 November Newsletter
I offered some pointers as to why Mr. Trump could not fulfil his
pre-election promise to halve the price of gasoline at the pump in the
US. If anything, getting anywhere close to this target looks even more
unlikely today. Consider:
- no matter how much ‘red tape’ the Trump administration cuts, Wall
Street — and, indeed, the extractors themselves — remain unenthusiastic
about significantly boosting output of oil in particular. A recent
survey by the Kansas City Federal Reserve found that US benchmark West
Texas Intermediate (WTI) needs to be sustained at a minimum of US$84pb
to spur major investment; it is currently around US$72pb and widely
forecast to slide below US$65pb by year-end.
- as Ken Silverstein argued in this 16 February article
for Forbes, Mr. Trump’s crackdown on spending on renewables authorised
under the Inflation Reduction Act could see oil and gas prices being
driven higher in the medium term, not least to meet the potentially
enormous electricity demands inherent in the 11 February Executive Order ‘Artificial Intelligence for the American People’.
- sweeping US tariffs on imports from Canada and Mexico
may be frozen for now but the threat remains. Around 40 percent of
crude oil refined in the US is imported. Of this almost 70 percent comes
from Canada (4mbpd) and Mexico (just over 0.5mbpd). Even the lower ten
percent tariff on energy imports which the president is threatening
would have serious implications for refineries dependent on the heavy
crude which these two countries produce and which the US could not
replace from domestic sources. As this 24 January article
by the American Fuel & Petrochemical Manufacturers trade
association notes, retooling US refineries to process light crude would
cost billions and take years.
On the face of it, this third point gives Canada — which has the
world’s third largest reserves of oil — a strong hand in the event of an
escalating trade war with the US. However, the country’s deep economic integration
with the US means that it lacks the infrastructure to divert its oil
output to either its east or its west coast for shipment to alternative
markets. In consequence, as the FT’s Tom Wilson wrote in this week’s Energy Source newsletter:
Previously scrapped pipelines such as Energy East, which would send oil 4,600km from resource-rich Alberta province to Canada’s
Atlantic coast, and Northern Gateway, another project to export heavy
oil to the Pacific coast, are being discussed as ways to find new
trading partners farther afield.
However, even though Mr. Trump’s neo-imperial insistence that Canada should become America’s ‘51st state’ has led to a surge in Canadian nationalist sentiment (perhaps to a level not seen since the War of 1812) such aspirations may well be no more than a literal pipe dream. As Mr. Wilson continued:
…building pipelines is a complicated process. It is expensive,
requires a huge logistical undertaking and needs a great deal of time,
effort and political capital in consensus building with First Nations,
local communities and environmental groups. Then there’s the regulatory
processes, legal issues and each province to deal with.
The additional political uncertainty flowing from Prime Minister
Justin Trudeau’s resignation is something of a sideshow. But the general
election which is expected soon after his successor is in place will
still result in a government which will have to make some tough
decisions on energy policy against a backdrop of Wall Street scepticism
about a fossil fuel resurgence and even caution among pipeline
companies.
None of this eases OPEC’s immediate problems. However, it does
suggest that, at least when it comes to oil and gas, Donald Trump is no
more capable of bucking the market than the cartel is, which may be some
small consolation.
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