-
Trump Factor: Decoding the potential impact on crude prices and India’s oil economy
Energy markets are attempting to understand the implications of Donald Trump’s presidency on oil and gas prices. Analysts predict that his actions could significantly influence global crude oil prices, with an 80% likelihood of a decline. However, there are a few factors that could drive prices higher.
Moreover, experts believe that although most of Trump’s policies are likely to have a bearish impact on prices, there is significant upside potential in his focus on ‘increased drilling’ and trade policies. Trade-related uncertainties and tensions continue to pose challenges for crude oil prices, particularly affecting energy prices in the US. There may be counterproductive effects on US exports resulting from the tariffs imposed on imports.
“US oil production means a well drilling cost requirement of $64/ bbl. Hence the degree of “Drilling” would be muted. Going forward, in a couple of years these costs could scale up to $67 and $70 range as per the forward prices,” said NS Ramaswamy, Head CRM & Commodities of Ventura Securities.
On the other side, Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services pointed out that since Trump is pro-fossil fuel, his regime is likely to give tax incentives for capital investment in the exploration and production of fossil fuels. This policy will keep crude prices soft, he opined.
“Since US is the largest producer of crude in the world now, OPEC is not as powerful as it used to be. This trend will accelerate with the potential to bring crude prices further down, going forward,” said Vijayakumar.
What does softening of crude prices mean to India?
Overall, declining crude prices can lead to various advantages for India, such as reduced import expenditure, decreased inflation, improved profit margins for industries, and enhanced performance in Indian stock markets.
“Softening crude price will be a macro positive for India which will help us to keep the current account deficit and fiscal deficit down, thereby imparting macro stability to the economy. An added positive is that this will lower inflation thereby enabling the MPC to cut rates early in 2025. Industries such as paints, tyres, adhesives and aviation, which use crude derivatives as inputs, will gain from the potential decline in crude prices,” said Dr. V K Vijayakumar.
However, in this case (Trump presidency), according to a few experts, India finds itself in a dilemma; if the trading range stays between $65 and $70, it may persist with imports from Russia. Continuing these imports could have repercussions on fiscal policy. With Trump likely to maintain a strong relationship with India, this could contribute to inflationary pressures. In any case, the status of our currency remains uncertain.
Share This
