In the lead-up to the 2024 U.S. presidential election, both former President Donald Trump and current Vice President Kamala Harris are making bold promises regarding energy policy. Trump advocates for a drilling-centric approach to reduce energy costs, while Harris reassures voters that she will not impose a ban on fracking. However, industry experts suggest that the political rhetoric may not significantly influence the energy markets in the near future.
Tom Kloza, the head of energy analysis at OPIS Global, points to a potential shift toward what he terms “serious energy deflation,” making it unlikely that either candidate’s policies will drastically alter the trajectory of energy prices. Kloza believes the upcoming officeholder will be facing an environment of low energy costs reminiscent of those seen at the start of the 2020 pandemic.
Recently, the energy market has experienced significant volatility, with oil prices hitting their lowest point since 2021. Year-to-date, West Texas Intermediate crude prices have fallen by approximately 2%, while Brent crude has seen a decline exceeding 4%. Simultaneously, gasoline prices have dropped to their lowest averages since February, currently sitting at around $3.24 per gallon, as reported by AAA.
Experts predict that prices at the pump could dip below $3 per gallon in the upcoming weeks due to the transition to cheaper winter-grade gasoline. This decrease is expected to positively influence consumer sentiment as fall approaches. Patrick De Haan, head of petroleum analysis at GasBuddy, highlights that grassroots shifts in pricing could energize consumers just in time for autumn spending.
Weak demand resulting from China’s ongoing housing crisis—where the nation is focusing on electric vehicle adoption and a greater emphasis on natural gas—has negatively impacted global oil prices. Concerns about economic slowdowns in the U.S. and Europe have also curtailed speculative investments in oil futures. Kloza notes the absence of speculators in the market, emphasizing that current financial participation is among the lowest since oil became an investment vehicle.
With the rapid decline in oil prices, analysts on Wall Street have been compelled to revise their forecasts; for instance, Morgan Stanley recently lowered its Brent price target for the second time within a month, now anticipating an average of $75 per barrel in the fourth quarter compared to an earlier estimate of $80.
The International Energy Agency has also adjusted its outlook for oil demand in both 2024 and 2025, hinting at a “firmly contracting” demand pattern in China. Meanwhile, OPEC has slightly moderated its own demand projections, but its expectations still exceed those of other industry stakeholders.
Further complicating the landscape, OPEC+ has chosen to delay the return of previously cut oil production, which had been scheduled for October. This decision reflects ongoing worries about whether there will be sufficient demand to absorb an increase in supply.
Against this backdrop, Harris positioned herself as a proponent of clean energy while simultaneously underscoring the U.S.’s record oil and gas production achievements. “We have invested a trillion dollars in a clean energy economy while also increasing domestic gas production to historic levels,” she stated at a recent event. In contrast, Trump asserts that he can significantly reduce energy costs, aiming to cut gasoline prices in half.
Yet analysts caution that production could be curbed if prices fall below key profitability thresholds. Overall, while prices might stabilize in the mid-60s range for U.S. crude, technological advancements are likely to contribute to ongoing production growth, with the U.S. achieving record levels next year.
As Kloza aptly summarizes, the recent past of fluctuating oil prices has been shaped by extraordinary events, such as the pandemic and geopolitical tensions. Moving forward, the energy market could stabilize into a more modest pattern, characterized by lower volatility than witnessed over the previous three years.
The implications of these developments extend well beyond energy bills; they will play a crucial role in shaping the political landscape and consumer expectations as the 2024 election approaches. As voters prepare to make their choices, the energy conversation remains a pivotal issue intertwined with the government’s economic strategy.