Oil stocks displayed a cautious trading approach, relinquishing some early gains from Wednesday following Trump's election victory, as rising concerns suggest that prospective advantages for the energy sector under a Trump administration might be neutralized by its own policies. The S&P 500 Energy Index saw a 3.5% increase on Wednesday, reaching its highest in a month, led by oil service companies like Baker Hughes (BKR) and Halliburton, with gains of 11% and 7% respectively.
This initial surge in oil stocks was likely propelled by Trump's campaign promise to intensify drilling. This was in sync with analysts' expectations at UBS who predicted energy and financial sectors, the two likely to benefit most from deregulation, to rally in case of Trump's victory.
The incoming Trump administration could potentially increase oil and gas leasing on federal land, reversing a decrease observed during Biden's term. This could lead to a rise in activity for drillers, rig providers and other entities in the oil industry. However, a rise in oil production, as per Trump's wishes, could result in an excess of crude supplies and a consequent downfall in oil prices, thereby affecting oil stocks.
Citi analysts warned that a potential 'red sweep' by the Trump presidency may be marginally bad for oil prices, predicting average Brent crude prices for 2025 at $60 per barrel. This downward pressure on prices could be due to policies aimed at deploying trade tariffs, potentially larger supply from OPEC+ and a supportive agenda favoring increases in oil and gas production. This could potentially reverse the hikes in royalties experienced during the Biden era. Brent crude futures for March 2025 were around $74 in early trading on Friday.