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The Overstated Impact Of Trump On Oil

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With Donald Trump set to enter the White House and OPEC having agreed to production cuts, analysts are focused on how the global oil industry and prices will be impacted in 2017. The new U.S. President-elect and his cabinet, along with their pro-drilling policies, are increasing hopes of a bright future for the U.S. oil industry, but it remains to be seen whether these hopes will translate into any practical outcomes. The most important of Trump’s energy appointments, it would seem, is the ex-CEO of ExxonMobil Rex Tillerson as Secretary of State. This and the recent deal struck in Vienna among the OPEC and NOPEC producers has caused global oil markets to rally. The benchmark Brent crude price has crossed the $55 mark and WTI is not far behind. Analysts are predicting that Trump’s team − unlike the outgoing Obama administration − will approve many of the halted North American pipeline projects and will make more land available for drilling, greatly benefitting the U.S. oil and gas industry.

But Michael Lynch, an energy analyst with a decade of experience in the industry, describes in a recent article how president-elect Donald Trump may cause damage to the industry instead of helping it to grow. Trump’s acrimony towards China has been widely reported on, evidenced by his threats to stop Chinese imports in order to boost U.S. domestic industry. But the approximately $500 million per annum of U.S oil and drilling equipment imported from China will certainly be more expensive if it is imported from elsewhere or made in the U.S. Lynch argues that “onshore operations could be made more expensive by tariffs on Chinese steel pipes in an effort to bolster U.S. steelmaking and coal mining”, adding that if Trump ends federal support for renewables there may be a loss of jobs in the energy sector. Such an outcome would be antithetical to his promises.

With regard to the availability of U.S. federal lands, one can easily see that land is not the major issue that oil majors and independents face − it is the price. Analysts have seen how the rig count has continued to climb as the prospect of a tighter oil supply in 2017 has increased the likelihood of higher prices. But the future of this rally hinges on the sensitive OPEC deal agreed in Vienna on November 30th and, as this reporter has noted before, the first six months of the planned reduction in output by OPEC and NOPEC are extremely significant. If the producers do not see any difference in oil price then members may eventually back off.

And, there is another catch. As Tillerson is perceived to be a reliable ally of Russian President Vladimir Putin, next year might see the lifting of sanctions on Russia by the U.S, which may consequently encourage the Russians to produce more oil as they would be unhindered by any Western sanctions. “While Russia is expected to substantially raise its mineral-extraction tax for next year, the crude export duty is set to decrease, “making crude exports in January more attractive vs. this month,” said JBC Energy in a research note.”

Another question yet to be answered is whether, after Tillerson’s appointment, Saudi Aramco − considered to be the largest company in the world by valuation − will be undermined by Tillerson’s ExxonMobil ties. “Most of Tillerson’s Exxon shares will not vest for a decade and would stand to increase in value from political decisions made in favour of Exxon’s interests. It seems unlikely that Tillerson would shun the shares to walk away with just $57m and a conflict-free bill of health. But keeping the shares would open the door to unrelenting scrutiny of his actions. Tillerson has been outspoken in his disapproval of sanctions against Russia, which reportedly cost Exxon $1bn in lost revenue from its projects in the hydrocarbon-rich country” reports the U.K. Telegraph.

But recently, the U.S. oil majors −once called before Congress to explain their ‘windfall profits’ − have suffered from lay-offs and falling share values. BP, Chevron and ExxonMobil and many more have posted billions of dollars in losses last year. “Tillerson’s exit from Exxon would come after a tumultuous period for his company, punctuated by a $1.7 billion loss in the second quarter and the loss of its AAA credit rating following the crushing global slide in oil prices” USA Today reported.

On the other hand, not much is known about Saudi Aramco. The Saudi oil giant’s facts and figures have long been shrouded in mystery as the oil kingdom does not release reliable data regarding its operations and financials. The recent plan to make a 5 percent share of Aramco public will create the largest sovereign fund in history, with a valuation conservatively estimated at $1 trillion. The recent increase in oil price may help the public offering further. Also, as the Saudi Deputy Crown Prince, Muhammad bin Salman, embarks on a plan to wean the country off oil, industry observers expect to see significant diversification in the Saudi energy sector. Few of these developments have been initiated, but recently Saudi Aramco announced two contracts: one for a wind turbine facility and another for a gas plant. A $900 million contract signed with South Korea’s Doosan Heavy Industry and Construction for establishing a power plant of 1.5GW is another development. Additionally, SoftBank and KSA are launching a technology fund which will see 100 billion dollars in investment. This marks Saudi Arabia’s entrance into the global technology sector.

 

Notwithstanding the fact that Exxon’s former CEO will sit in the world’s most powerful diplomatic position, the fact remains that he − or for that matter Mr. Trump − do not have much power over the global oil industry, especially as to the oil and gas majors’ ability to generate profits and increase crude oil prices commensurate to the levels seen before 2014. “It’s clear that he’s talked about relaxing environmental regulations, and that would obviously bode well for the drillers and what not, and that would include opening up some federal lands that have been restricted, both onshore and offshore,” Thomas Watters, an energy analyst, was quoted as saying by USA Today. “But just to be clear, the drilling activity… that we have seen in the U.S. wasn’t due to regulation, it was due to economics. So, at the end of the day, it’s going to be about where oil prices are and how producers react to that”.

In fact, Saudi Aramco, is doing very well as it appears to be moving towards a path of future diversity and adaptability. ExxonMobil and other majors should do the same. As far as oil prices are concerned, it seems that the strength of the U.S. dollar, U.S. wells being expected to produce prolifically given the regulatory support of Trump administration, and the “Putin factor” may not prove as beneficial to the oil industry as they seem on the surface. As noted above, it remains to be seen whether the hopes of a new energy re-emergence will translate into any practical outcomes.

oilprice.com



13 Comments on "The Overstated Impact Of Trump On Oil"

  1. rockman on Thu, 29th Dec 2016 10:03 am 

    So many words and so little substance IMHO. For instance: “Analysts are predicting that Trump’s team − unlike the outgoing Obama administration − will approve many of the halted North American pipeline projects”. Other then the Keystone XL border crossing permit name one other instance of the federal govt denying pipeline permits? And don’t say the recent conflict in N Dakota: the feds granted the original pipeline permit but has refused to issue the easment under the reservoir. Given the new administration will come into office in a few weeks at the same time the reservoir will no longer be a water source as the replacement comes on line it won’t be a surprise to see the easement granted very soon. The Democrat party might try to take advantage but given that soon no one will be using that water from that lake it probably won’t get much traction. Especially if the new administration points out that a portion of the oil shipped down the pipeline is owned by another Native American tribe.

    But back to President Obama killing pipeline projects. Other then the border crossing permit and the ND easement situation the federal govt has no authority over the vast majority of pipeline projects. The states control those projects. And even with the border crossing authority and President Obama refused to sign the KXL permit he did approve all the other requests to expand capacity of the existing pipelines that cross the US/Canadian border. He also gave high praise to the construction of the southern leg of KXL which he declared “was vital to the US economy”. Which is was: it allowed a record breaking volume of Canadian oil imports despite the lack of the border crossing permit as the choke point at Cushing was eliminated.

    But back to the anticipation of new life being injected into the fossil fuel industry by a President Trump. Well don’t hold your f*cking breath IMHO. LOL. I won’t bother detailing all the positive developments that occurred during President Obama’s 8 years in office. Done that a number of times. Granted some of those gains were just the situation of the POTUS being in the right place AF the right time. Situations that likely won’t repeat themselves during at least the first term of the new POTUS.

    Here’s just one reasonable possibility: while President Obama saw the highest rate of increase of US oil production since the beginning of the petroleum age we may see the highest rate of the decrease in US oil production since the beginning of the petroleum age. And no doubt at all well see a much lower rig count and number of wells drilled during a President Trump’s the during President Obama’s first term. And now that I think of it probably much less coal exported under a President Trump.

    The fossil fuel industry will surely miss the great days it saw while President Obama, the “greenest POTUS in history, was in control. LOL.

  2. Dredd on Thu, 29th Dec 2016 5:00 pm 

    The puppet does not pull the strings of the puppeteer.

  3. Anonymous on Fri, 30th Dec 2016 1:10 am 

    The amerikan empire is, amoung other things, an empire of illusions and fictions. One fiction, is that the privately owned uS oil cartel, is actually subject to the ‘law’, or what passes for it in the empire of chao$. A great deal of effort is spent to maintain this facade of corporate fealty to the ‘law’. Rockyman himself, goes out of his way to remind us all on a regular basis what good, compliant corporate ‘citizens(united), his beloved oil cartel is. Of course, what he never mentions is that uS oil essentially owns the lawmakers, courts and enforcement agencies that make the laws big oil so scrupulously obeys (lol). uS oil does not answer to ‘states’, or ‘Canadians’, or the ‘feds’ (lol), uS oil mostly answers to uS oil, and no one else.

    On a related note, the uS oil punditocracy, loves to play up the uS ‘president’, and what he will do\for\about the ‘oil industry’. This constant pretense about the uS ‘president’ serves two purposes. One, is to make it appear the uS president actually has some kind of independent authority to influence uS oil operations in some way. The other, lesser consideration, is to reinforce the idea that the uS president is something other than a powerless figurehead. Or put differently, the uS president pretends he can tell uS oil what to do, and uS oil pretends they must obey him, in theory anyhow. Appearances must be maintained after all.

    Thanks for pointing out the obvious, rockyman.

  4. onlooker on Fri, 30th Dec 2016 1:30 am 

    Anon, so right the degree of corruption and sabotage of all legitimate so called democratic institutions is amazing. The pecuniary control of all the levers of power and influence is absolute, that is what is also amazing. We have essentially a Corptocracy. Meaning an oligarchy mixed with a plutocracy and kleptocracy. The Rule of Money. The Banking Industry and a few key Corporations is where the true power lies, in this high financial tier is where you find the decision makers. And those at the top or those who are key components of this system are totally immune from normal prosecution. At most you will get some expendable sacrificial lambs to take the fall. But the system and all its working parts remains because that is how those at the top stay there and that is how the US remains with the clout to enforce this utterly corrupt system.

  5. makati1 on Fri, 30th Dec 2016 4:46 am 

    How the United States of America SHOULD be spelled … $$$$$$ $$$$$$ $$ $$$$$$$ … Money rules. The Bill of Rights has been murdered. The Constitution is locked away where no one can use it to protest, or save it from the Bill of Rights fate.

    If you have lots of it ($$$), you are above the law. (Bill and Hillary are the latest examples.)
    If you are like the rest of us … well, lets say the current Police State makes the old Nazi Gestapo look like beginners. 600,000+ pages of laws and thousands of pages added every year. Fees and fines for everything you might want to do. Millions of cameras watching everything you do. Internet spies recording every conversation or site you access. Your income manipulated so they can take more and more of it from you. Everything but rectal exams to leave from, or return to, the Land of the Free, and they may be coming. Be patient.

    Tell me again why I might want to return and live there? The proverbial hell would have to freeze over first. LMAO

  6. Davy on Fri, 30th Dec 2016 5:11 am 

    Well makati maybe your big family or don’t they miss you? What a warped man you are.

  7. Boat on Fri, 30th Dec 2016 10:10 am 

    So tell me boys, why are some of these large evil corporations that require intensive amounts of energy the same ones driving renewables. Is solar and wind now corrupt because data bases eat the most btu’s?
    If coal was the cheapest electricity in the US, trust me these same companies would be investing in it. But coal and soon to be nat gas have lost that competive advantage in many areas around the world. Those areas continue to grow rapidly.
    In a few years we will be talking about world peak coal and maybe even peak nat gas. Corruption cannot compete with the cheapest btu but rather drawn to it for it’s very survival. Renewables and advancement of efficiency tech will soon be driving larger chunks of the energy market.

  8. JN2 on Fri, 30th Dec 2016 3:35 pm 

    Boat, back in the day, Google had a mantra “RE < C". Renewable energy costing less than coal. It's here.

  9. Truth Has A Liberal Bias on Fri, 30th Dec 2016 6:07 pm 

    Fuck off boat, you’re a god damned retard. Why don’t you go get a basic fucking education. When you can solve a simple quadratic equation let me know you stupid fuck.

    Here a basic fucking high school math question. A straight line on a graph passes through points 3,7 and 9, -4. Solve the linear equation for the line. Hint: y=mx+b where m= slope and b=y intercept.

    Fucking dumbass. I bet you don’t even know highschool math. Now tell us again how you’re a successful player in the stock market and that you thought the world uses a billion barrels of oil every 10 years. Fucking clown.

  10. GregT on Fri, 30th Dec 2016 6:07 pm 

    “So tell me boys, why are some of these large evil corporations that require intensive amounts of energy the same ones driving renewables.”

    Maybe it’s because the market is already saturated with ‘smart’ phones, PCs, and flat screen TVs.

  11. Anonymous on Sat, 31st Dec 2016 2:41 pm 

    Boatards drivel, as usual, has little to do with the topic at hand. But then, fucking retards tend to live in, and create, their own reality.

  12. Boat on Sat, 31st Dec 2016 3:35 pm 

    The Canadian glee club is singing again. Me thinks it’s greggiet x 3. Must be drinking time.

  13. GregT on Sat, 31st Dec 2016 5:07 pm 

    “Must be drinking time.”

    You should really think of quitting Kevin. It’s crystal clear that you can’t even function normally when you’re sober.

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