Before the election, we thought forecasting oil prices in 2017 was going to be hard. Now, a week later, it looks downright impossible. Thanks to a combination of the U.S. Presidential election and the growing crude oil supply in the run-up to OPEC’s signature meeting in two weeks, the outlook on crude oil production looks very bullish, leaving the price quite uncertain.
President-Elect Donald Trump appears to be “good” for oil, both globally and domestically, from a production standpoint. His opposition to the heavy regulations placed on the oil and gas industry should bode well for the approval and rejuvenated construction of many pipeline projects that were halted under the Obama administration. These projects include, but are not limited to, the Dakota Access, which would carry oil from North Dakota to refineries in Illinois, as well as the Keystone XL, which would take Alberta tar sands crude oil from Canada to the Gulf Coast. Additionally, part of Trump’s campaign message was to limit the regulations of the EPA, which would in turn spark additional pipeline construction and drilling rig activity here in the U.S. EPA regulations that could be repealed include the Renewable Fuel Standard (RFS) and the RIN (Renewable Identification Numbers) mandate. As mentioned before, his election should benefit the oil industry from a production standpoint, but probably not from a price perspective.
Reduced EPA regulations, increased crude imports from Canada, rejuvenated drilling and fracking in U.S. shale locations, and a slew of international oil and gas changes would tremendously increase supply worldwide, putting further downward pressure on crude prices. On a global view, Trump has gone on record stating that he would like to reverse the Iran nuclear deal. Doing so would in fact reduce Iran’s production of crude oil; however, we are at a critical time in which a production freeze from OPEC and non-OPEC members is much needed. The move to reverse the Iran deal could be the monkey wrench in the works that could delay the OPEC supply agreement and continue the suppression of oil prices. It will be interesting, but also imperative to monitor, the effects of Trump’s election on the oil and gas industry over the next few weeks, but more importantly after his inauguration in January.
Globally, the oversupply of crude oil is continuing. Just over two weeks away from OPEC’s freeze meeting, several countries are pumping crude at record levels. With Libya, Iraq, and Nigeria all feverishly pumping—and even requesting exemption from production cuts—OPEC production increased an additional 240,000 barrels/day. As result, WTI and Brent are both currently trading at three month lows.
Domestically, however, the decline in crude oil prices has been balanced with the strengthening of refined product. Pipeline shutdowns and a slew of refinery issues in the Midwest has strengthened both the New York and Chicago cash markets for both ULSD and RBOB.
The market is currently down across the board. WTI is trading at $42.34 (-1.07) while RBOB and ULSD are down $0.0339 and $0.0241 respectively.