Donald Trump wants lower energy prices. He might get his wish after he is sworn in as president of the world's largest oil producer on Jan. 20, but not because of anything he says or does. Oil prices are expected to fall next year due to a looming surplus. The U.S. is producing record amounts of crude while demand in China, the world's largest oil importer, is slowing as its post-pandemic economic recovery loses steam. Bearish sentiment has swept the energy market, pushing U.S. crude oil prices down about 1% this year and global benchmark Brent down more than 4% as traders fear an imbalance between supply and demand. "Trump may get lucky and enjoy lower oil prices due to largely fundamental reasons, not anything he's going to do on day one or afterward," said Bob McNally, president of Rapidan Energy Group. Saudi Arabia, Russia and six other OPEC+ members have delayed plans to increase production until April in order to prop up prices and keep them from sliding further. The International Energy Agency sees a surplus of 950,000 barrels every day in 2025, even if OPEC+ continues to sit on millions of barrels it could put into the market each day. Brent is expected to trade around $65 per barrel in 2025 and U.S crude at $61, according to forecasts from Bank of America and RBC Capital Markets. Those prices are more than $8 below current levels. While some commodity analysts are less pessimistic than that, few see a really bullish year ahead for oil. UBS, for example, thinks the most likely outcome is that prices will be little changed in 2025, with Brent averaging about $80 per barrel, supported by stronger demand and a smaller surplus than other forecasters. Trump, ironically, is a wild card that could change the price direction. Despite his desire for lower prices, Trump could have the opposite effect if he cracks down on Iranian and Venezuelan oil exports, said Jorge Leon, geopolitical analyst at Rystad Energy. Trump's threatened tariffs, on the other hand, likely won't start affecting global demand until 2026, Leon said. "Trump is slightly bullish for 2025 and bearish for 2026," the analyst added. Chevron top pick If oil prices don't budge, Trump's desire to increase production could prove illusory, at least in the short- to medium term. U.S. production is currently on track to hit a record of 13.2 million barrels per day (bpd) this year and could rise to 13.5 million bpd in 2025, according to Department of Energy forecasts. But production could plateau or even decline next year if U.S. crude oil prices remain at current levels, according to a UBS research note last week. Some U.S. shale producers need U.S. crude prices to hit $70 per barrel to drill new wells at a profit, according to the bank. In an environment where oil prices are flat at best, UBS sees the two oil majors Exxon Mobil and Chevron as best positioned to deliver shareholder returns due to their "balance sheet strength and unique assets." Exxon has gained about 8% this year, outperforming the energy sector in general and Chevron in particular after closing its acquisition of Pioneer Natural Resources. UBS, however, sees Chevron pulling ahead of Exxon in 2025 because the stock has more catalysts ahead. Chevron could start production at its project in Kazakhstan in the first quarter, hit a Permian production target of 1 million bpd in the U.S. by mid-year and then close its acquisition of Hess Corporation in the third quarter, according to UBS. Divergent paths The two integrated oil behemoths, with both exploration and production and refining and marketing businesses, are taking divergent paths in their planned spending in 2025, a sign that they will continue to respond to the market and not just fall in line with the incoming president's wishes. Chevron is cutting its capital expenditures by $2 billion in 2025, as it focuses on slashing costs and boosting profits. Exxon, on the other hand, is boosting capital expenditures by as much as $3 billion from $26 billion this year to between $27 billion to $29 billion in 2025. "Chevron is shying away from capital expenditure increases, while Exxon is more bullish on the oil market," said Bob Yawger, director of energy futures at Mizuho Securities. UBS has a price target for Chevron of $195, implying about 30% upside from Tuesday's close $148.11 per share. The bank gave Exxon a price target of $149, suggesting 37% upside from the close of $108.01.
