Oil prices headed lower on Friday after the latest OPEC report indicated significantly higher Iranian oil production.
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The shockwave of the surprise election of Donald Trump is still being felt around the world, with all sectors of the global economy scrambling to figure out the ramifications of his presidency. The political establishment in Washington is reeling, and there are more questions than answers on Trump’s approach to energy. One thing is for sure: he will usher in one of the most deregulated eras for oil and gas in recent memory. He will rescind regulations that affect methane emissions, hydraulic fracturing, and greenhouse gas emissions. He will likely streamline or gut permitting requirements for major infrastructure projects, clearing the way for pipelines. He will probably open up public lands for expanded drilling opportunities, and in time, he could auction off drilling rights in the Atlantic Ocean, Arctic Ocean, Alaskan wilderness, and even the Eastern Gulf of Mexico. He has also promised to withdraw from the Paris Climate Accord. Some of that agenda will require acts of Congress, but with Republican control of both the House and Senate, nearly all of that agenda is within reach. It is hard to overstate what a revolution in energy policy this could be. The one major caveat is that Trump has been vague on specifics, so the devil will be in the details.
EPA to become climate skeptic; Interior to be pro-drilling. Trump has Myron Ebell leading his EPA transition team, a known denier of climate science. His priority list will be gutting major environmental regulations, which could even include the “endangerment finding,” a scientific declaration that found carbon emissions as a threat to public health, which was used by the Obama administration as the legal justification for greenhouse gas regulations. In short, executive action on climate change is likely dead. That is ominous for the trajectory of climate change, but the energy industry will rejoice. Politico reports that Trump is considering Forrest Lucas, the founder of Lucas Oil, as his pick for Sec. of Interior. The agency oversees public lands, and would seem to be a move to open up the vast swath of public lands for more drilling.
Dakota Access to move forward. The Dakota Access Pipeline, led by Energy Transfer Partners (NYSE: ETP), will probably be able to overcome federal scrutiny and environmental protest under a Trump administration. ETP says that it expects to complete the pipeline in the first quarter of 2017 and is excited about the Trump administration. “My God, this is going to be refreshing, so I think, overall, I’m very, very enthusiastic about what’s going to happen with our country,” he said.
U.S. oil production rises. Weekly data from the EIA shows U.S. oil production up to 8.69 million barrels per day in the first week of November, up 170,000 barrels per day from last week. The rig count jumped by another 12 rigs as of Nov. 4, up 165 from the low point earlier this year. Drilling is picking up again and companies are getting back to work. But in a sign of trouble ahead, an oilfield services company in Calgary says that it is having trouble finding enough people to hire now that drilling is picking up pace. After having cut 700 workers over the past two years, The Canadian Press reports that Essential Energy Services is struggling to staff up as many workers have moved on to other industries. Related: Trump To Clear Way For Oil Pipelines
OPEC production rising. The IEA said that OPEC production jumped to 33.8 million barrels per day in October, up 230,000 barrels per day from the previous month. OPEC issued similar numbers in its report released on Friday. That could mean that OPEC’s effort at cutting production to its stated 32.5-33.0 mb/d range as part of a November deal will be much more difficult to achieve, or even agree to. OPEC is also producing about 1 mb/d more than what demand is projected to be in 2017.
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Oil prices falter. After a brief period of volatility after Tuesday’s election, oil prices have fallen back again as oversupply looms and doubts over OPEC persist. The IEA warned of “relentless global supply growth” after OPEC boosted production, and reiterated projections for a balancing at some point in 2017. “Prices could fall to $40 or perhaps a little bit lower, especially in the absence of a deal” by OPEC, Abhishek Deshpande, an analyst at Natixis SA, said on Bloomberg Television.
Oil hedges rising. The FT reports that several oil companies disclosed in recent filings that they have stepped up their oil hedges for 2017 production. With oil prices having risen to $50 per barrel last month, a handful of companies, including Devon Energy (NYSE: DVN), Cimarex Energy (NYSE: XEC) and Murphy Oil (NYSE: MUR), have hedged some of their production for next year. Hedging will protect them from downside risk to oil prices and grant them certainty for their spending plans.
Petrobras reports huge loss. Brazilian oil giant Petrobras reported a $5 billion loss in the third quarter, massively underperforming expectations. The state-owned company took large impairment charges. The company has $122 billion in debt, the largest in the world.
Shell to invest $10 billion in Brazil. Petrobras’ string of losses over the years, in some senses, plays to the advantage of international companies. The Brazilian government has begun liberalizing the oil sector in order to attract outside investment, wooing companies like Royal Dutch Shell (NYSE: RDS.A). Shell says it will invest $10 billion in Brazil over the next five years. These commitments are not surprising since Shell’s large purchase of BG Group was in part a play on offshore Brazil.
By Evan Kelly of Oilprice.com
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