Trump’s ascendency: Oil, gas industry in a new era

Donald Trump’s election as US President rattled crude oil market. Before midnight on Election Day, West Texas Intermediate futures had dropped more than 4 percent to $43.07 a barrel on the New York Mercantile Exchange; Brent crude slid by more than 3 percent to $44.40 on the London-based ICE Futures Europe exchange.

However, as it became clear that Trump was heading for victory, both indices had made up some of the ground lost so that they were trading over $44 per barrel and $45 per barrel respectively.

Shares of US independent refiners jumped the most since August on speculation costly renewable fuel regulations will be eased after Donald Trump was elected the next US president.

While the surprise election of Donald Trump as the next President of the United States is still shaking the world, all sectors of the global economy are already trying to figure out the implications of his presidency.

For the oil and gas industry, some analysts are expecting revolution in energy policy even though Trump was vague on specifics. But there may be some givens; he will rescind regulations that affect methane emissions, hydraulic fracturing, and greenhouse gas emissions. He has also promised to withdraw from the Paris Climate Accord. And there are also some probabilities; he could open up Federal lands to drilling and auction off drilling rights in the Atlantic Ocean, Arctic Ocean, Alaskan wilderness, and even the Eastern Gulf of Mexico.

With Republican control of both the House and Senate, he can bully his way for some of the agenda that will require acts of Congress.

Trump’s various policy positions could either support or weaken oil prices, making it more complicated for OPEC to conclude a deal, said David Hufton, chief executive officer of brokers PVM Group Ltd. in London.

The result could be “bearish for the emerging markets, which drive oil-demand growth” because Trump has vowed to scrap international trade agreements in Latin America and Asia, according to consultant FGE.

Trump has also said he would undo last year’s nuclear accord with Iran, potentially reversing increases in the Islamic Republic’s oil exports, said RBC Capital Markets.

It’s too early to draw conclusions

Trump energy statements on the campaign trail were mostly slogans and large scale promises. The devil is in the details, thus, it is too early to draw conclusions. But definitely, some US policies are likely to shift in the oil and gas sector when Trump assumes presidency next year.

For instance, Trump said he would remove any restrictions on US energy exports and that he would support hydraulic fracturing. In essence, he will support US oil and gas production, with less regulation on exploration and a lifting of drilling restrictions in certain locations.

He said he supported letting local residents vote on fracking bans. “America is sitting on a treasure trove of untapped energy; some $50 trillion dollars in shale energy, oil reserves and natural gas on federal lands, in addition to hundreds of years of coal energy reserves,” Trump said during a keynote speech at the Shale Insight conference in Pittsburgh, a summit of natural gas producers.

“I am going to lift the restrictions on American energy and allow this wealth to pour into our communities.”

Trump said he would open federal lands for oil and gas production, and free up offshore areas to energy development. He also questioned climate-change science and vowed to withdraw from the Paris agreement to limit global warming, measures that would potentially redefine the nature of global energy consumption if coal returns as a growth fuel for power generation.

Trump not a fan of Saudi, Iran

Donald Trump was critical of both Saudi Arabia and Iran during the campaign. He told the New York Times in March that he might stop buying oil from Saudi Arabia and other Arab countries unless they committed ground troops to combat Islamic State or reimbursed the US for its efforts.

Trump is also opposed to the nuclear deal with Iran that unlocked the country’s oil exports. He said in a speech to the American Israel Public Affairs Committee in Washington in March that his “Number 1 priority is to dismantle the disastrous deal with Iran.”

While tearing apart the accord is “technically possible,” it is “extremely unlikely” that the other world powers that negotiated with Iran alongside the US — China, France, Russia, the U.K. and Germany — “would follow our lead,” US Energy Secretary Ernest Moniz said in April.

OPEC deal faces increasing urgency

Speaking at the Williston Basin Petroleum Conference in Bismarck, North Dakota in May, Trump promised independence from the Organization of Petroleum Exporting Countries (OPEC), although he didn’t elaborate on how that would be achieved. His stance makes it more imperative for the oil cartel to finalize a deal on production cuts this month.

OPEC faces increasing urgency to take measures that will support oil prices as Trump’s surprise victory threatens to deepen a market sell-off, said UBS Group AG. Yet the uncertainty arising from the President-Elect’s policies, from climate change to the US shale industry and sanctions on Iran, will make resolving differences between producers even harder.

“The pressure on OPEC to come up with a deal only increases in the wake of Trump’s victory,” said Giovanni Staunovo, an analyst at UBS in Zurich. “Even though the oil market is rebalancing, the political uncertainty in the short term leaves oil prices vulnerable to downside that makes it more urgent for OPEC to act.”

Oil prices had already retreated about 15 percent since October on growing doubts that OPEC could finalize the Algiers accord at its November 30 meeting amid a refusal to cut output from almost a third of its members.

FRANK UZUEGBUNAM (with agency reports)