Trump likely to aggressively attempt to limit gasoline price appreciation

Trump's amenable relationship with Saudi Arabia, and easing US demand growth will help him achieve this goal.

Market & Trading Calls

• While Donald Trump will likely take an aggressive stance towards Iran, he will look to pressure OPEC+ to pump more oil if Brent prices move above $80/bbl next year. We currently estimate Brent prices will average out to roughly $75/bbl next year, down from $81/bbl in 2024.
• Similar to his first term in office, Trump will focus on limiting gasoline price appreciation, which shares a close link to consumer sentiment. In Trump’s first term, the average unleaded retail gasoline price averaged $2.38/gal, well below the $3.33/gal seen during the Biden administration, who was forced to deal with a war in Ukraine, a less than amenable relationship with Saudi Arabia, and surging energy demand in the years immediately following the Covid pandemic.
• Assuming a $3/bbl WTI discount to Brent next year, we estimate the possibility that US retail unleaded gasoline prices average out to a range near $2.80/gal, roughly 42 cents below the 12-month average through October of this year.

Market Analysis

As Donald Trump prepares to return to the White House, the market awaits what could be major changes in economic policy, and geopolitical positioning for the United States. This includes a focus on Iran and OPEC+. It is currently our base case that a Trump administration will take very seriously the price of oil given the downstream impacts on gasoline prices. In Trump’s first term, rising gasoline prices were often a catalyst for aggressive tweets calling on Saudi, and the OPEC+ block of countries more broadly, to pump more oil.

Our official Brent spot forecast expects an average price of roughly $75/bbl next year, down from what we expect will be an $81/bbl average this year. Broadly speaking, we feel an $80/bbl upper limit on spot Brent is likely. Any time prices move above this level, the White House will likely pressure OPEC to pump more oil, many members of which will be happy to oblige. This will help to offset any loss of Iranian volumes if Trump decides to escalate the current Middle Eastern conflict with Israel or pressure China to purchase fewer Iranian barrels. At present, Iran is exporting nearly 1.6 Mbd, up from roughly 500 kbd when Trump left office in early-2020.

Daily US Spot Unleaded Gasoline Price ($/gal, left) and State of Economy Survey (right)

Source: EIA, YouGov

Trump was certainly more successful than Biden at capping gasoline prices, albeit this was in part a result of external factors. Biden was forced to deal with surging demand in the immediate post-Covid years, a war in Ukraine, and an OPEC+ organization that did not share an amenable relationship with the White House. Over the course of Biden’s term, average retail unleaded gasoline prices held at $3.33/gal, with a standard deviation of nearly $0.46/gal, implying high amounts of volatility. During Trump’s first term in office, prices averaged just $2.38/gal, with a standard deviation of $0.27/gal.

It is conceivable that Trump will once attempt to keep gasoline prices under control over the next four years. Trump has long held an innate awareness that consumer sentiment declines quickly as gasoline prices move towards extreme levels (>$3.50/gal). But what should we expect when it comes to the average gasoline price in 2025? If we assume on average a $3/bbl discount on WTI ($72/bbl) against Brent next year, this implies a roughly $2.80/gal price for US retail unleaded gasoline, which is $0.42/gal below the 12-month average through October of this year.

The United States gasoline demand profile might also have an impact on pricing next year. As we’ve written about at times earlier this year, US economic growth is steadily starting to de-link from clean products consumption. Next year we forecast US gasoline consumption will finish at 9 Mbd, marking a slight 50 kbd decline against year earlier levels and roughly 400 kbd against pre-pandemic norms. This is despite our expectation that US GDP growth will expand by 2%, in line with the long-run trend.

Yearly US Gasoline Demand (kbd, top) and Y/Y Delta (kbd, bottom)

Source: Kpler

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