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Former President Donald Trump has promised to lower energy prices if he wins the presidential election in November.
“By reducing energy costs, we will also reduce the costs of transportation, manufacturing and all domestic goods,” Trump said Thursday at the Republican National Convention.
“Drill, baby, drill,” he added.
The problem is that oil companies may not want to if prices fall too much, according to JPMorgan analysts. In fact, such a scenario could have exactly the opposite effect of what was intended.
“We estimate the breakeven price for WTI crude at around $70/bbl and believe that even at $60/bbl, prices are too low to encourage production, which could lead to a spike to $100/bbl next year,” Natasha Kaneva, head of global commodities strategy at JPMorgan, wrote in a June 17 note that analyzed the implications for commodities under a “red wave” outcome in November.
Matt Stephani, president of Cavanal Hill Investment Management, agrees that Trump’s promise on energy prices may not come to fruition:
“I don’t believe a Trump victory would significantly impact U.S. oil production or global oil prices,” he recently told Yahoo Finance.
The Trump 2.0 outlook, however, has weighed on oil stocks. Energy stocks have rallied in recent weeks as investors shifted away from technology and Trump has risen in the polls.
On Monday, the West Texas Intermediate (CL=F) hovered near $80 a barrel. Brent (BZ=F), the international reference price, was traded just above US$82 per barrel.