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Former president Donald Trump has promised he will lower energy prices if he wins the presidential election in November.
“By slashing energy costs we will in turn reduce the cost of transportation, manufacturing and all household goods,” said Trump last Thursday at the Republican National Convention.
“Drill baby, drill,” he added.
The problem is oil companies may not want to if prices drop too much, according to JPMorgan analysts. In fact, such a scenario could have the exact opposite effect as the one intended.
“We estimate the equilibrium price of WTI oil at around $70/bbl and believe that even at $60/bbl, prices are too low to incentivize production, potentially leading to a spike to $100/bbl in the following year,” wrote Natasha Kaneva, JPMorgan’s head of global commodities strategy, in a note released on June 17 which looked at the implications for commodities under a ‘Red Wave’ outcome in November.
Matt Stephani, president at Cavanal Hill Investment Management, agrees that Trump’s vow on energy prices may not materialize:
“I don’t think a Trump win would significantly impact US oil production or global oil prices,” he recently told Yahoo Finance.
Prospects of Trump 2.0 have, however, impacted oil stocks. Energy equities have moved higher in recent weeks as investors rotated out of tech and Trump has risen in the polls.
On Monday, West Texas Intermediate (CL=F) hovered near $80 per barrel. Brent (BZ=F), the international benchmark price, exchanged hands just above $82 per barrel.
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