FEATURE: US election looms as OPEC+ bids to shore up oil market

OPEC+ output policy tends to consider myriad factors, including Chinese demand, non-member crude production, quota busting and volatility -- but the US election on Nov. 5 could be just as important for the alliance.

From US production to Middle East security and sanctions, the impact of a Donald Trump or Kamala Harris win will be profound for OPEC+ just as it is battling to shore up the oil market amid unprecedented volatility.

Growing US crude production has been a major challenge for OPEC+ in recent years, exerting downward pressure on prices, threatening the bloc’s market share and helping push it into massive output cuts.

Indeed, BCA Research’s Commodity and Energy Strategist Roukaya Ibrahim said increased US production – as well other non-OPEC+ countries such as Brazil, Guyana and Canada – “has nearly fully nullified the impact of OPEC+ production cuts this year.”

Oil prices have been volatile in 2024 but are currently slightly below the start of the year, despite a total 5.8 million b/d of OPEC+ cuts designed to tighten the market. Platts, part of S&P Global Commodity Insights, last assessed Dated Brent at $73.19/b on Oct. 30, compared to $75.7/b on Jan. 2.

Nevertheless, analysts do not expect the US election to directly affect its crude production in the short term. US shale output tends to be price sensitive and while Trump might have vowed to “drill, baby, drill” if he regains the White House, most US production is on state, rather than federal lands.

Indeed, experts see financial markets as more likely to determine future US production volumes than presidential actions. “The primary constraint on US drilling and production has been investor demands for fiscal discipline, not federal policy…and that won’t change no matter who wins in November,” said Mark Finley, a fellow in energy and global oil at the Baker Institute for Public Policy at Rice University.

Sanctions impact

One key area of divergence between Trump and Harris, however, is sanctions policy, analysts say, which has affected crude output in OPEC+ producers Russia, Iran and Venezuela in recent years.

After plummeting during the first Trump administration, production in Iran and Venezuela has recovered under President Joe Biden, with the focus of sanctions moving to Russia.

Both countries are exempt from quotas under the OPEC+ agreement, allowing them to pump as much as they can. They produced a combined 4.15 million b/d in September, according to the Platts OPEC+ Survey by Commodity Insights, up from 3.2 million b/d in February 2022, when Russia invaded Ukraine.

Conflicts in Ukraine and the Middle East as well as anti-democratic moves by Venezuelan leader Nicolas Maduro are likely to remain the key drivers of US sanctions policy, but the severity, speed and enforcement could differ depending on November’s result.

“Under a Trump Administration, the possibility of loosening sanctions on Russia is greater than under a Harris presidency,” said Jim Burkhard, vice president, research, S&P Global Commodity Insights. “Neither will be eager to ease sanctions on Iran given the escalation of its conflict with Israel.”

Ibrahim said Trump is more likely to apply maximum pressure on Iran than Harris. “Tighter sanctions would create space for other producers to make up for supply losses. OPEC could take advantage of this by raising its own output,” she said.

Energy security

Another area of divergence could be on Middle East energy security, OPEC+ largely counting on the US to help secure energy infrastructure in the region amid escalating tensions between Israel and Iran.

In September 2019 Saudi Aramco’s Abqaiq crude processing plant and Khurais oil field were attacked, taking out over 5 million b/d of production. The US – then led by Trump – responded by deploying additional US troops and boosting Saudi air defenses.

Since the Israel-Hamas war began last October, Yemen’s Houthi rebels have attacked vessels – including crude tankers – in Middle East chokepoints, although Biden appears to have succeeded in preventing Israel from striking Iranian oil installations.

In a note on Oct. 29, Standard Chartered bank said “the risk of an escalating series of attacks over an extended period,” could spike oil prices. The potential for a further confrontation between Israel and Iran “is likely to widen significantly as soon as voting has concluded in the US election,” StanChart said.

Fractious relationship

Beyond production, OPEC’s relationship with the US has been fractious at times.

Periods of price volatility have led the US and IEA to release strategic petroleum reserves, impacting crude prices and OPEC producers’ export revenues. US presidents have signed off on emergency SPR releases in response to Operation Desert Storm, Hurricane Katrina, unrest in Libya and Russia’s invasion of Ukraine.

Trump also directly called for the group to change output policy during his presidency. In 2018 he demanded the group increase production in a flurry of tweets. In April 2020, when the coronavirus pandemic caused prices to crash, Trump regularly tweeted about OPEC+ negotiations, which eventually resulted in massive production cuts.

“A US president would likely try to assert influence when prices rise, especially if they were to reignite inflation. But the oil market is currently well-supplied – and is moving to a significant surplus if OPEC+ increase production in 2025,” Burkhard said.

OPEC has not officially commented on the presidential race. One delegate said that the group does not discuss US presidential elections, “but we are all conscious that the stand of the US upon OPEC organization will not change whoever wins the election.”

US legislators have also expressed anti-OPEC sentiment in the recent past. The US Federal Trade Commission accused Hess CEO John Hess of coordinating with OPEC to inflate global oil prices, blocking his bid to join Chevron’s board of directors.

Others have prepared several so-called “NOPEC” bills, which would allow the US to sue OPEC for price collusion, but none have received presidential approval.

Voluntary cuts

The US presidential elections take place just as Saudi Aramco releases its official selling prices and allocations to term buyers – seen as a key indicator of the kingdom’s likely output policy in the month ahead.

Under current plans Saudi Arabia and its OPEC+ allies will gradually bring 2.2 million b/d of voluntary cuts back to market starting from December. However, depressed oil prices could see the group make changes to these plans.

The oil market will be watching closely as Americans go to the polls on Nov. 5.

OPEC+ ministers are next scheduled to meet on Dec. 1, but can call extraordinary meetings or amend policy at any time.