Trump’s vow to ‘drill baby drill’ bodes well for oil? It’s more complicated, analysts say

Crude oil futures posted a second straight weekly decline, punctuated by sharp losses Friday as a global cyber outage led to risk-off sentiment across markets and helped lift the dollar.

Simmering concerns about Chinese demand are weighing on the market, following data this week suggesting a softer demand picture, while expectations of a tight market through Q3 are providing a floor to prices, ING strategists Warren Patterson and Ewa Manthey said, according to Marketwatch.

Investors also may be eyeing a potential ceasefire in Gaza, as Secretary of State Blinken said a long-sought agreement between Israel and Hamas was within sight.

“The crude oil market is visibly tight at the moment, with inventories drawing, strong backwardation and robust physical differentials,” Morgan Stanley said, as reported by Dow Jones, but “the balance is likely to return to equilibrium in 4Q when seasonal demand tailwinds abate and both OPEC and non-OPEC supply return to growth.”

Morgan Stanley still forecasts Brent in the mid-$80s/bbl in Q3 and likely during 4Q as well when inventories stabilize, but the bank predicts a drop to the mid-$70s in 2025 when it sees supply outgrowing demand.

Front-month Nymex crude (CL1:COM) for August tumbled 3.2% on Friday and -2.5% for the week to $80.13/bbl, and front-month September Brent (CO1:COM) slid 2.9% Friday and -2.8% this week to $82.63/bbl.

U.S. front-month August natural gas futures (NG1:COM) ended a volatile week -8.6% to $2.128/MMBtu on lower LNG feedgas deliveries and cooler near-term weather forecasts.

ETFs: (NYSEARCA:USO), (BNO), (UCO), (SCO), (USL), (DBO), (DRIP), (GUSH), (NRGU), (USOI), (UNG), (BOIL), (KOLD), (UNL), (FCG)

Traders also may be looking at politics, with Donald Trump’s prospects for winning the November presidential election seen on the rise, but “the Trump trade on oil is not that clear,” Swissquote Bank analyst Ipek Ozkardeskaya said, according to Marketwatch.

A reflationary environment could keep the price of WTI on a positive track above key support at $80/bbl in the short run, Ozkardeskaya said, but moving much higher would be unlikely since higher oil prices boost inflation expectations and can reduce bets on easing by the Federal Reserve.

Citi analysts see oil fundamentals becoming “markedly more bearish” starting in Q4, with the higher probability of a Trump presidency raising the likelihood of increased tariff announcements, and “oil trades very poorly into tariff headlines.”

Trump led delegates at the Republican convention in raucous chants for the U.S. to “drill, baby, drill,” but it is not clear companies would go along, Kevin Book of ClearView Energy Partners told Bloomberg.

Trump’s message does not appear to reflect top U.S. oil executives that have shown little appetite to dramatically raise production, instead embracing fiscal discipline and a focus on shareholder returns.

But while there are few meaningful restrictions on drilling for Trump to undo, a new administration could affect the demand side with electric vehicle incentives and fuel economy standards getting reconsidered, Height Capital Markets research director Benjamin Salisbury said.

Energy (XLE), as represented by the Energy Select Sector SPDR Fund ETF, was the week’s top sector performer, +2%.

Top 5 gainers in energy and natural resources in the past 5 days: Hawaiian Electric (HE) +67.9%, KLX Energy Services (KLXE) +21%, New Fortress Energy (NFE) +20.7%, Perma-Pipe International (PPIH) +15.8%, Largo (LGO) +14.5%.

Top 10 decliners in energy and natural resources in the past 5 days: Nuscale Power (SMR) -26.3%, Nano Nuclear Energy (NNE) -22.8%, Lightbridge (LTBR) -22.7%, ASP Isotopes (ASPI) -18.4%, Plug Power (PLUG) -18.1%, Vistra Energy (VST) -16.2%, Indonesia Energy (INDO) -15.5%, Energy Fuels (UUUU) -15.1%, Calumet Specialty Products (CLMT) -14.3%, Ballard Power (BLDP) -14.2%.

Source: Barchart.com