Global Energy Markets and the US Election

Our US Public Policy and Global Commodities strategists discuss how the outcome of the election could affect energy markets in the US and around the world.

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Ariana Salvatore: Welcome to Thoughts on the Market. I'm Ariana Salvatore, Morgan Stanley's US public policy strategist.

Martijn Rats: And I'm Martijn Rats, Global Commodity Strategist.

Ariana Salvatore: Today we'll be talking about a topic that's coming into sharper focus this fall. How will the US presidential election shape energy policy and global energy markets?

It's Thursday, September 5th at 10am in New York.

Martijn Rats: And 3pm in London.

Ariana Salvatore: As we enter the final leg of the US presidential campaign, Harris and Trump are getting ready to go head-to-head on a number of key topics. Healthcare, housing, the state of the economy, foreign policy; and also high on the agenda -- energy policy.

So, Martijn, let's set the stage here. Prices at the gas pump in the US have been falling over recent weeks, which is atypical in the summer. What's happening in energy markets right now? And what's your expectation for the rest of the year?

Martijn Rats: Yeah, it's a relevant question. Oil prices have been quite volatile recently. I would say that objectively, if you look at the market for crude oil, the crude oil market is tight right now. We can see that in inventories, for example, they are buying large drawing, which tell[s] you, the demand is outstripping supply.

But there are two things to say about the tightness in the crude oil market. First of all, we're not quite seeing that tightness merit in the markets for refined products. So, get the market for gasoline, the market for diesel, et cetera. At the moment, the global refining system is running quite hard.

But they're also producing a lot of refined product. A lot of gasoline, a lot of diesel. They're pushing that to their customers. Demand is absorbing that, but not quite in a convincing manner. And you can see that in refining margins. They have been steadily trending down all summer.

The second thing to say about the tightness and crude is that it's largely driven by a set of factors that will likely to be somewhat temporary. Seasonally demand is at its strongest -- that helps. The OPEC deal is still in place. And as far as we can see in high frequency data, OPEC is still constraining production.

And then thirdly, production has been growing in a number of non-OPEC countries. But that absent flows and the last couple of months have seen somewhat of a flat spot in non-OPEC supply growth.

Now, those factors have created the tightness that we're seeing currently in the third quarter. But if you start to think about the oil market rolling into the fourth quarter and eventually 2025, a lot of these things going to reverse. The seasonal demand tailwinds that we are currently enjoying; they turn into seasonal demand headwinds in four q[uarter]and one q[uarter] -- seasonally weaker quarters of the year. Non-OPEC production will likely resume its upward trajectory based on the modeling of projects that we've done. That seems likely. And then OPEC has also said that they will start growing production again with the start of the fourth quarter.

Now, when you put that all together, the market is in deficit now. It will return to a broadly balanced state in the fourth quarter, but then into a surplus in 2025. Prices look a little into the future. They discount the future a little bit

Now, as the US election approaches, investors are increasingly concerned how a Trump versus Harris win would affect energy policy and markets going forward. Ariana, how much and what kind of authority does the US president actually have in terms of energy policy? Can you run us through that?

Ariana Salvatore: Presidential authorities with respect to energy policy are actually relatively limited. But they can