AMER­I­CAN SHALE OIL AND GAS IN­DUS­TRY SET FOR IM­MI­NENT BOOST

Resource Digest - - RESOURCE DIGEST -

Don­ald Trump as US Pres­i­dent could mean global crude oil prices stay­ing in the goldilocks range of $45-$60 a bar­rel. That’s pri­mar­ily be­cause US shale oil and gas — that since 2014 has dis­rupted the cosy world of tra­di­tional oil pro­duc­ers led by Saudi Ara­bia — will get a shot in the arm from Trump’s ‘Amer­ica First’ world view.

The US Pres­i­dent-elect, also known for his pro-busi­ness lean­ings, will likely make things eas­ier for US shale oil and gas pro­duc­ers.

Trump’s com­ing to power could mean fi­nan­cial in­cen­tives, tax breaks and eas­ier land and en­vi­ron­men­tal clear­ances for US shale pro­duc­ers. Over the past few years, shale has helped the US turn from an oil and gas im­porter into an ex­porter, se­cur­ing its en­ergy in­de­pen­dence and adding to its geopo­lit­i­cal heft.

The US, es­pe­cially un­der Trump, is un­likely to let go of this ad­van­tage, given the evolv­ing dy­nam­ics in West Asia.

Over the past cou­ple of years, re­la­tions be­tween the US and Saudi Ara­bia have turned testy on sev­eral is­sues — for in­stance, on the nu­clear deal with Iran and on the con­duct the war in Syria and Ye­men. There could now be more strains in the re­la­tion­ship, es­pe­cially given Trump’s strong com­ments about Saudi Ara­bia’s com­mit­ment to the war against ISIS and his op­po­si­tion to the im­mi­gra­tion of Mus­lims into the US.

Shale pro­duc­ers in the US have, for some time now, been on the back-foot due to the Saudi pol­icy of up­ping pro­duc­tion to main­tain mar­ket share while push­ing down prices. The re­sul­tant sharp drop in global crude oil prices to be­low $30 a bar­rel ear­lier this year led to many US shale play­ers shut­ting shop. Prices have since risen to about $45 a bar­rel.

Also, more respite could be on the cards from the re­cent OPEC de­ci­sion to cap crude oil out­put to prop up prices — low prices not only hurt US shale pro­duc­ers but also put se­vere pres­sure on OPEC mem­bers such as Venezuela and Saudi Ara­bia it­self (de­spite its deep pock­ets).

This, along with a weak­ness in the dol­lar, at least in the near term, from global ner­vous­ness about Trump’s pres­i­dency, should sup­port oil prices. Add to this Trump’s likely pol­icy sup­port that could lower costs for US shale pro­duc­ers.

Ergo: these pro­duc­ers will be in a bet­ter po­si­tion than be­fore to com­pete with tra­di­tional oil pro­duc­ers. That said, more US shale pro­duc­tion in an al­ready over­sup­plied mar­ket could keep a cap on global oil prices at about $60 a bar­rel

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