Zhitong Finance and Economics App learned that Changjiang Securities released a research report that even if Trump is in power in the future, oil prices may not fall sharply, and the value of allocating three barrels of oil after adjustment is prominent. Based on Trump's policy tendency to expand oil production and reduce inflation as well as concerns about a recession, international oil prices and related assets have significantly declined. However, there have been many changes in this round of Trump's trade, and the ability and willingness of US shale oil companies to increase production have weakened, so the supply side may not increase significantly; due to the pressure of fiscal balance on oil prices, OPEC has a stronger willingness to decrease production and support prices. The US economic recession has not yet been determined, and Trump's tax policy may promote domestic demand growth. Therefore, considering supply and demand, oil prices may not continue to adjust significantly.

Impact of Trump's trade and recession expectations on oil prices and the petrochemical sector.

During the April-June 2024 period, Biden's support rate was only slightly behind that of Trump, but after the first candidate debate, Trump's lead significantly expanded. After Trump's attack, it further strengthened public opinion and market expectations of Trump's election. At the same time, the July non-farm employment data in the United States was lower than expected, and based on Trump's policy tendency to expand oil production and reduce inflation as well as concerns about a recession, international oil prices and related assets have significantly declined.

How did crude oil trend in Trump's previous term?

During Trump's previous term, he adopted the method of "expanding production domestically and exporting abroad." The number of oil and gas drilling rigs in the United States was at a high level, and crude oil production reversed the downward trend in 2016 and basically maintained steady growth. As for other supplies, due to the impact of low oil prices, OPEC began to cut production for the first time in eight years in 2017; the United States restarted sanctions against Iran, which significantly affected Iran's production and exports. Overall, during Trump's first term (excluding global black swan events after 2020), despite the significant increase in US production, oil prices did not fall overall.

What is different about this round of Trump's trade?

Many environmental factors have changed, leading to potential differences in the crude oil industry in Trump's next term compared to the previous one.

The ability and willingness of US shale oil companies to increase production have weakened, so the supply side may not increase significantly: 1) Starting from 2021, inflationary factors have made actual capital expenditures biased towards weakness. With respect to costs, compared with Q1 2018, the shale oil breakeven price rose sharply by 23% to $64/barrel; 2) Cost increases combined with the impact of the oil and gas structure on income, US shale oil and gas companies did not realize higher profitability during high oil prices, and if oil prices fell in the future, their willingness to increase production would decrease significantly; 3) The efficiency of new well production capacity improvement is limited, and coupled with the inventory well inventory reaching a historical low, in terms of capacity, the future increase in the US is limited.

Due to the pressure of fiscal balance on oil prices, OPEC has a stronger willingness to decrease production and support prices. Moreover, after 2020, with the production rate of the shale revolution not exploding again, OPEC's reduction of production has a substantive supportive effect on oil prices. If Trump takes office again, his political attitude towards Iran and Venezuela will remain the same as his first term, which will continue to restrict their oil exports, restrict global crude oil supply, and maintain short-term crude oil prices. From the perspective of demand, the non-farm employment in the US in July was lower than expected, but this month's data was disturbed to some extent by hurricanes. Combined with historical replay and high-frequency indicators, it cannot be concluded that the US economy has declined, and Trump's tax policy may promote domestic demand growth. Therefore, considering supply and demand, oil prices may not continue to adjust significantly.

Considering supply and demand, oil prices may not continue to adjust significantly, as the US economy has not yet been determined to decline and Trump's tax policy may promote domestic demand growth.

After adjustment, the cost-effectiveness of the three major oil companies stands out.

The three major oil companies have both the ability and willingness to distribute dividends, and high dividend yield is expected to continue in the future. Based on a relatively conservative calculation of a $60/barrel oil price ceiling, PetroChina, Sinopec, CNOOC, and China National Offshore Oil Corporation are expected to have dividend yields of 3.67%, 6.09%, 3.33%, and 4.75% respectively in 2024. In the future, as profits gradually expand, the dividend yields of the three major oil companies will continue to increase, and their dividend yields are also relatively high among high dividend yield stocks. Therefore, Changjiang Securities believes that even if Trump takes office again, oil prices may not fall sharply, and the value of the allocation of the three major oil companies after adjustment is prominent.

Risk warning

1. Large-scale downward trend of international oil prices; 2. Geopolitical risks; 3. Risks brought by the operation of the international market; 4. Risks brought by natural disasters, severe weather and other natural factors.