"Top Oil Executives Reckon With Downturn Amid Trump's Support"

The energy sector is at a crossroads. On one hand, the recent victory of former President Donald Trump has sparked optimism among oil executives, with his pro-oil and gas policies expected to boost production and potentially drive up profits. On the other hand, the global oil market is facing a significant downturn, with surplus production and declining demand leading to lower prices and reduced refining margins. This complex landscape presents both opportunities and challenges for top oil executives as they navigate the uncertain future of the industry.



Market Dynamics and Policy Shifts

The world is poised for a year of surplus oil production in 2025, with benchmark prices such as WTI and Brent staying far below 80 U.S. dollars per barrel since summer 2024. This trend is expected to continue well into 2025 and 2026 as greater upstream activity in non-OPEC countries, such as the United States and Guyana, is set to flood the market with more oil. The cost of living crisis affecting consumer behavior in major markets such as China and Germany has already resulted in oil production outperforming demand, leading to economic stagnation and lower oil prices.

Trump's anticipated pro-oil and gas policies are expected to further boost U.S. oil and natural gas production, which is currently at record levels. His victory has led to a surge in the energy sector, with the Energy Select Sector SPDR Fund (XLE) climbing nearly 4% the day after his election. This rally reflects market optimism for fossil fuel investments under Trump's anticipated policies, which include expanding drilling on public lands and reopening offshore oil and gas leasing. However, renewable energy companies faced declines, with U.S. solar giant First Solar dropping over 10%, indicating a potential shift in investment strategies for top oil executives.

Upstream Investments and M&A Activity

Despite lower crude prices, 2025 could see nearly three times more upstream investing activity than 2024, with more than 60 oil and gas extraction projects reaching final investment decision (FID) that year. However, this trend is expected to lessen from 2026 onward. Meanwhile, after two years of significant mergers and acquisitions, particularly in the U.S. shale industry, 2025 is poised for more modest M&A activity, with total deal value at around two-thirds the decade high of 2023.



Refining Margins and Infrastructure Challenges

Declining profits have also been one of the main pain points for refiners, with refining margins notably declining since the oil price surge of 2022 and 2023. Outdated infrastructure and uncertainty over long-term oil demand have made continued investment in refineries less attractive, especially in Europe, which has stricter fossil fuel exit strategies. As a result, 2025 is set to see a slew of refinery closures across Europe and the United States. Although these closures may buoy refining margins in the near term, weak consumption outlooks mean that relief could be short-lived, especially as refiners in Asia still plan to add notable capacity.

Long-Term Demand and Emerging Sectors

In the long term, industry body OPEC still sees a robust demand for oil products such as diesel and gasoline, although it expects kerosene and jet fuel, aviation fuels that are more difficult to substitute, to see the greatest demand increase until 2045. This suggests that while there may be short-term challenges, the long-term demand for oil products remains strong. However, the projected decline in refining margins and the planned refinery closures across Europe and the United States are expected to have significant impacts on the profitability of oil companies.

To mitigate these challenges, oil companies could employ several strategies, including diversification into higher-margin products, investment in upstream activities, expansion into emerging markets, cost optimization and efficiency improvements, and strategic mergers and acquisitions. By implementing these strategies, oil companies can better navigate the challenges posed by declining refining margins and planned refinery closures, ensuring long-term sustainability and profitability.

Conclusion

The energy sector is at a critical juncture, with top oil executives facing both opportunities and challenges in the wake of Trump's pro-oil and gas policies and the global oil market downturn. While Trump's policies may provide a boost to traditional oil and gas investments, the long-term outlook for the industry remains uncertain. By diversifying their portfolios and implementing strategic measures, oil companies can better navigate the complex landscape of the energy sector and ensure long-term sustainability and profitability.