IMPACT OF THE NEW ADMINISTRATION ON THE PRICE OF OIL

President Trump’s withdrawal from the Paris Climate Accord might be good for the Oil Industry but will erode the price of oil even further as the perception is that drilling permits will become easier to obtain. During the first week of June, Brent crude fell 1.8% to $49.71 a barrel on London’s ICE Futures exchange and the West Texas Intermediate futures were trading down 1.9% at $47.44 a barrel.

The slides in price began when the Organization of the Petroleum Exporting Countries (OPEC) and other major producers agreed to extend ongoing production cuts by nine months on May 25. However, the messages sent by the various participants were mixed and Investors have expressed their concern on rising production. EIA reported last week that U.S. average daily output hits its highest level since August 2015.

OPEC decision was widely anticipated but many investors were hoping that the producers would be even more aggressive as they aim to work off a glut that has weighed on the market for nearly three years.

At the same time, Libya, a member of OPEC that is exempt from the agreement to cut production, is once again ramping up output, according to its National Oil Corp. It seems that in spite of upbeat declaration by the Saudi Minister of Energy and his Russian counterpart the market is being driven by supply & demand and the rising US oil supply is driving a lower price. A plethora of producers outside of OPEC are pushing up their production for export such as Brazil and Kurdistan. This is not supporting a higher price.

In such an environment where to invest in the O&G industry becomes a difficult dilemma. Much of the oil and gas industry has survived an especially tough few years with weak demand and low prices. It has been difficult to make strategic decisions and plan for the future.