$CNOOC(00883.HK)What was the old logic?

Under the leadership of Biden, the consensus was that new energy would replace old energy, and global capital stopped investing in old energy. Naturally, scarcity drove prices higher, and embracing old energy could yield excess returns.

But now, Biden, who advocates for new energy, is on his way out, while Trump, who supports old energy, is about to make a grand comeback. The macro environment is about to undergo a dramatic shift, and the old logic no longer holds. It's highly likely that oil prices will drop to $60 under Trump's pressure, representing a roughly 30% decline from current levels.

Trump's suppression of oil prices is a two-birds-one-stone strategy.

First, it's the most effective way to curb inflation. Commodities and oil prices are correlated; once oil prices crash, gold, silver, copper, aluminum, lead, and zinc will naturally follow suit and bottom out. Trump is shrewd—he’s truly grasped the key to taming inflation.

Second, it’s the most powerful means to end the Russia-Ukraine war. As Trump said in his interview, the root cause of the Ukraine war is also oil prices. At $40 per barrel, Russia wouldn’t have started the war, but at $100, of course they would. Russia is the only one profiting from this war. As long as oil stays at $100, the war won’t end. That’s why the world is in chaos right now.

Do you know Russia's breakeven oil cost? It’s close to $50. If oil prices drop to around $60, Russia won’t make any money—why would they keep fighting?

Clearly, if Trump can crash oil prices, his historical legacy will rival Reagan’s. And in reality, lowering oil prices is simple—just increase production.

Many might not know this, but the U.S. has the world’s largest oil reserves, over 80 billion barrels. Besides high-cost shale oil, there are plenty of shallow oil fields with breakeven costs around $20, but they’ve been kept under protection. Once Trump takes office, lifting the ban would quickly boost oil output.

Now look at the top 10 oil-producing countries in 2023.

The U.S., Russia, Saudi Arabia, Canada, Iraq, China, Iran, Brazil, the UAE, and Kuwait. These 10 countries produce 58.9 million barrels per day, accounting for 72.1% of global output (81.7 million barrels/day). The U.S. alone produces 21.88 million barrels daily.

So, if the U.S. increases production by just 10%, it could crash global oil prices.

The macro environment is changing—we’re about to shift from a high-oil-price era to a low-oil-price one. Investment logic must evolve with the times; clinging to the old ways won’t work.