Morgan Stanley on Wednesday said recent remarks and executive orders from President Trump point to tougher U.S. pressure on Iran and Venezuela, potentially affecting global crude oil and refined product balances.
The bank said stricter enforcement of sanctions against Iran in Trump's first term limited Iranian exports to about 400,000 b/d, well below the 1 million b/d the country exported during the Biden administration. It suggested the new administration may take measures that could put several hundred thousand barrels per day of Iranian exports at risk.
Venezuelan imports may also be targeted, Morgan said. The U.S. in recent years has allowed for individual licenses to import the heavy South American crude and said halting that practice could further constrict an already tight global market for heavy sour crude.
But Morgan analysts said potential U.S. tariffs could play a larger role. The bank regards tariffs as protectionist measures that could drive up inflation and suppress global trade. "The threat of significant import tariffs" is a bearish risk for oil prices, the bank said in the report.
On the demand side, Morgan analysts said they believe Trump's efforts to reverse electric vehicle credits over time could alter demand curves. The moves might have a very modest near-term impact but could lift medium and longer term demand for gasoline and diesel, according to the report.
In Trump's first term, his administration adopted the Safer Affordable Fuel Efficient vehicles' rule. If those measures had continued, Morgan said fuel demand from 2020-2050 might be 5-6% higher than under the stricter Corporate Average Fuel Efficiency rule adopted during the Biden administration.
Final rules published by the NHTSA last year would have raised mileage requirements to 50.4 mpg in 2031 from 39.1 mpg today. But it now appears likely those light-duty vehicles rules and efficiency targets for heavier trucks may be rolled back.
The bank crunched some numbers based on possible actions by the new administration.
Among them, Morgan said a proposed 25% tariff on Canadian energy could widen the Western Canadian Select's discount to West Texas Intermediate crude by about $5/bbl. For a producer like Canadian National Resources a 25% tariff could cost the company $300 million.
Cenovus could take a $140 million hit and Imperial Oil might see profitability decline by as much as $72 million. A lesser impact might be incurred by Suncor because the company is more diversified with downstream Canadian operations.
The bank's analysts also weighed in on the always controversial topic of the "break-even" cost for U.S. shale-derived crude. They cited assessments that peg the average break-even price in the Permian Basin, Bakken and Eagle Ford shale plays at about $50/bbl.
Still, the variation in shale geography is quite substantial. About 20% of the wells brought online in late 2023 had a breakeven above $70/bbl and Morgan said it believes new wells might fall into that range. A bottom-line analysis suggests that the economics of raising production substantially while lowering prices are "very challenging," the bank added.
Further Morgan said cheap U.S. natural gas as a steady future factor that advantages U.S. refiners. With Henry Hub natural gas priced about $10/MMBtu below in Europe gas, U.S. refiners have about a $3/bbl edge over their European counterparts. The biggest risk to that pricing gap could be a negotiated ceasefire in Russia's war with Ukraine that would allow Russian natural gas exports to resume.
Trump's promises to cut off funds disbursed for new fuels via the Inflation Reduction Act received some scrutiny in Morgan's report, but the bank said it believes investments in carbon capture, renewable fuel and blue hydrogen are less at risk than subsidies for other technologies.
This content was created by Oil Price Information Service, which is operated by Dow Jones & Co. OPIS is run independently from Dow Jones Newswires and The Wall Street Journal.
--Reporting by Tom Kloza, tkloza@opisnet.com; Editing by Jeff Barber, jbarber@opisnet.com
(END) Dow Jones Newswires
January 23, 2025 16:51 ET (21:51 GMT)
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