Finance
‘Serious energy deflation’ is coming whether Trump or Harris wins, says analyst
In their bids to win the 2024 election, former President Donald Trump has promised to “drill, baby, drill” to lower energy prices, while Vice President Kamala Harris has assured she won’t ban fracking.
Those promises may not matter much in the near term. Energy prices are poised to drop, regardless of who wins, says one industry watcher.
“Whoever gets elected in November is going to be very fortunate in that they are going to be dealing with some of the most serious energy deflation … since 2020,” Tom Kloza, OPIS Global head of energy analysis, told Yahoo Finance, referring to the start of the pandemic lockdowns four years ago when US crude prices slumped as travel demand collapsed.
This past week was one of the year’s most volatile for the energy markets as oil touched its lowest level since 2021 before ticking higher on Wednesday. Year to date, West Texas Intermediate (CL=F) is down about 2%, while Brent (BZ=F), the international benchmark, is down more than 4%.
Gasoline prices have also fallen to their lowest level since February, with the national average at $3.24 per gallon, according to AAA.
Prices are expected to go lower as the industry soon switches to a cheaper winter-grade gasoline. Analysts predict the national average will dip below $3 per gallon in the coming weeks barring an unforeseen event.
“These sub-$3 prices are sure to boost consumer sentiment going into the fall,” GasBuddy head of petroleum analysis Patrick De Haan told Yahoo Finance.
Weak demand out of China, the biggest importer of oil, has been the main driver of declining crude prices. The country has been battling a housing crisis while shifting toward electric vehicles and more natural gas consumption.
Cracks in the US economy and Europe have also weighed on the markets, keeping some speculators notably at bay.
“What happened this summer and what continues to happen is that you do not have speculators buying futures and options contracts anymore,” said Kloza. “The fact that we didn’t see more speculative money coming into the market … that might represent a real sea change for oil.”
“Right now, financial participation in oil markets is probably as low as it’s been since oil became an asset class,” said Kloza.
The fall in oil prices has been so rapid that Wall Street analysts have been forced to revise down their forecasts. On Monday, Morgan Stanley cut its Brent price target for the second time in a matter of weeks, citing risks of “considerable demand weakness.”
The analysts forecast Brent will average $75 per barrel in the fourth quarter of this year, $5 lower than the prior downwardly revised outlook of $80 issued in late August.
Oil demand growth forecasts have also come down. The International Energy Agency cut its outlook for 2024, citing Chinese oil demand “firmly in contraction.”
The revision came the same week oil alliance OPEC slightly trimmed its own oil demand forecast. Despite the revision, OPEC’s expectations are still near double other industry estimates.
The oil alliance spearheaded by Saudi Arabia has been eager to bring back more of its supply by unwinding some of its production cuts, which have helped keep a floor on prices.
However, the cartel recently delayed the reintroduction of barrels initially slated for October given the slump in oil. The postponement didn’t do much to boost prices.
“OPEC+ still has a significant amount of oil that is just waiting to return to the market. And I think that’s the concern — is there really that demand to really satisfy and absorb that increased oil that is going to come back to the market sometime soon?” Tortoise senior portfolio manager Rob Thummel told Yahoo Finance on Wednesday.
In a nod to centrists, during Tuesday’s event Harris underscored record production in the US, the largest oil and gas producer in the world.
“We have invested a trillion dollars in a clean energy economy while we have also increased domestic gas production to historic levels,” said Harris.
Meanwhile, at rallies, Trump has promised to produce even more oil in order to cut energy prices in half and bring gasoline below $2 per gallon, though analysts expect producers to keep his “drill, baby, drill” vow in check if prices go too low.
On average, companies need the price of US crude to be at least $64 per barrel in order to profitably drill a new well, and $39 for existing ones, according to the Dallas Federal Reserve survey.
With WTI trading near $69, production is expected to continue growing amid technological breakthroughs. The US reached peak production last year despite declining US drilling activity because new wells are more efficient, according to government data. US oil production next year is expected to reach another record level, given advances in horizontal drilling and fracking.
“Ukraine war, the COVID lockdowns, those are the things that shaped oil prices in the last four years,” said OPIS’s Kloza.
“The more likely thing is that we’re going to see much more modest prices next year, and we’ll see oil trade in [on] a lot quieter terms than we have for the last three years,” he added.
Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on X at @ines_ferre.
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The World Bank is ditching its commitment to steer 45 percent of its spending toward projects with climate benefits, after facing pressure from the Trump administration.
The move, announced Monday following a meeting of the bank’s board of directors last week, marks a victory in President Donald Trump’s effort to purge climate policies from U.S. foreign policy. His administration has described the target as “distortionary” and “nonsensical.”
The bank preserved its broader Climate Change Action Plan — of which the 45 percent target was a key metric — just days before it was set to expire at the end of June. In addition to directing money toward climate projects, the plan provides technical support for helping countries reduce their greenhouse gas pollution and adapt to rising temperatures.
“We will retire the 45% climate co-benefits target,” the World Bank Group said in a statement, noting that it had “done significant work in answering client demand and needs.”
The bank’s work on climate “is and will remain firmly client driven, supporting them in delivering on their own ambitions as set out in their national plans and NDCs,” the statement added, referring to the nationally determined contributions countries submit under the Paris Agreement.
The decision to drop the climate finance target follows months of pressure from the Trump administration. People with knowledge of the negotiations said the U.S. was firm that the target must go despite other countries indicating their support for the bank’s climate goal. The U.S. has sway over the bank’s decisions as its largest shareholder.
Beyond the finance target, the Climate Change Action Plan also provides diagnostic reports on countries’ climate and development goals and aims to align lending with the Paris Agreement, which calls for preventing temperature rise from surpassing 2 degrees Celsius since the Industrial Revolution.
The bank said it would honor a board request to undertake an independent evaluation of the climate plan to determine if it’s helping countries grapple with rising temperatures. The decision effectively extends the plan beyond its expiration at the end of June.
The climate target was supported by many of the bank’s shareholders. It’s also been a prominent signal of the bank’s support for climate action at a time when the impacts of rising temperatures are accelerating.
“This is way, way away from where we should be for a responsible financial architecture,” said one official from a developed country who was directly involved in the negotiations and was granted anonymity to describe internal discussions.
The bank will continue to track and report on the amount of money going to projects with climate co-benefits. It exceeded its own target last year by directing 48 percent of its financing to climate-related projects.
Other climate targets embedded in agreements that govern different arms of the bank will remain, including one for the International Development Association, the bank’s fund for the poorest countries.
Multilateral development banks play a key role in global climate negotiations, where wealthy countries have committed to helping provide $300 billion a year for poorer countries by 2035. That no longer includes the United States, which has left the Paris Agreement and will exit the underlying United Nations Framework Convention on Climate Change early next year.
“Targets send enormous signals about an institution’s direction of travel,” said Clemence Landers, a senior fellow at the Center for Global Development. “At the same time, it’s a sign of the times and the World Bank is doing its level best to not rankle its largest shareholder.”
She believes the bank will continue financing renewable energy projects in countries that want them, despite having dropped its climate target.
“I wouldn’t be shocked if the bank continued to have an extremely robust clean pipeline with or without this target,” said Landers.
The bank says retiring the 45 percent target is part of its shift from a focus on “inputs to outcomes.” It will continue to monitor and report net greenhouse gas emissions across its projects and countries’ ability to withstand climate risks.
“We will continue to report to the Board on progress, including on climate co-benefits, and to contribute to our related joint MDB efforts,” the statement said, referring to its role as a multilateral development bank. “We will explore and discuss ways to better structure our engagement on adaptation, nature and pollution.”
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