Weekly Review

With the advent of the Trump administration and Republican control of the Congress, the world oil situation seems likely to become more uncertain than usual. In the last two weeks, the new President has signed numerous executive orders that will have an impact on the oil industry in coming years. The President and the Republicans in Congress will soon have done everything they can to launch a new oil boom by reducing environmental and financial regulations; permitting whatever pipelines the oil industry wants to build; and opening federally-controlled property and offshore areas for drilling. Republicans have long held that America would be energy independent were it not for the restrictions unfairly placed on the industry. While these measures may eventually spur more drilling, for the time being, however, oil prices and the demand for oil will still determine investment decisions. Some are questioning whether the Keystone XL will be built in the near future given the relatively low oil prices and the shale oil boom that have become important since the pipeline was planned.

Prices moved slightly higher last week as the markets continued to watch the decline in oil production by most OPEC members and a few other exporters interested in seeing oil move higher. The evidence continues to accumulate that progress is being made in achieving OPEC’s 1.8 million b/d cut. In addition to a number of OPEC luminaries who assured the world that the cuts are happening and that the markets would be balanced shortly, tanker-tracker Petro-Logistics said that its information indicates that OPEC will reduce its supply by 900,000 b/d in January. This number does not include 11 non-OPEC members that are also supposed to be cutting production 600,000 b/d. The CEO of Petro-Logistics which has been monitoring tanker movements for 30 years said this suggests “a high level of compliance thus far.”

Three themes dominated the oil news last week. 1. Will OPEC with Russian help succeed in cutting production enough to rebalance the oil markets and move prices significantly higher? 2. Will the US oil industry rebound so vigorously as to offset the OPEC cuts? 3. And finally what will the be the impact of all the new energy policies the Trump administration is beginning to implement?

For the last month oil prices have been stuck in a trading range in New York of between $52 and $54 a barrel. In London, oil has been trading two or three dollars higher. After a 30 percent jump in the last six weeks of 2016 in response to the OPEC production freeze, prices have stabilized as the markets wait to see the degree of compliance with the pledged production cuts. It may take several months to establish a clear trend as so many nations are involved in the cut. While a few countries, particularly the US, publish oil production and inventory statistics weekly, others do a poor job of collecting statistics. A few release incorrect production numbers they know to be untrue for a variety of political reasons.

Most of the discussion last week focused on the year just past and what 2017 will bring. Oil prices barely moved during the holiday week closing out the year at $53.72 in New York and $56.82. During 2016, however, US futures closed up about 45 percent for the year and London about 52 percent. It was quite the year for the oil industry with prices ranging from $30 to $55 a barrel; the election of fossil-fuel-friendly Donald Trump to the US presidency; and the OPEC/Russia production cut agreement deemed responsible for the record price rebound during the year.