Donald Trump on Monday posted a video describing plans for his first 100 days as US president. “On energy, I will cancel job-killing restrictions on the production of American energy,” he said.
The US president-elect plans to open more federal lands and waters to oil and gas leasing, streamline permits for new energy projects and rescind executive actions of President Barack Obama. Deregulation forms the core of his pledge to make the US “energy independent”, an elusive idea invoked since the 1970s.
So should the oil market expect a jolt of new US crude? Not soon, for four main reasons: oil prices, the dollar and interest rates, the limited impact of current regulations and shifting US relations with oil exporters such as Russia and Iran.
West Texas Intermediate was up 0.8 per cent at $48.65 a barrel early on Tuesday. The price, up 80 per cent from the depths of last winter, is still too low for many producers to make a profit. US crude production has declined about 1m barrels per day from its April 2015 peak of 9.6m b/d after drillers responded to falling prices by idling rigs.
Michael Cohen, oil analyst at Barclays, says: “While the menu of options is going to expand, at the end of the day prices are going to drive development. If that’s the case, unless we go to $80 next year it is hard to see anything changing in the supply picture.”
The dollar has surged since Mr Trump’s election. On balance a stronger US currency tends to weigh on the price of oil, which is sold in dollars, and damp drilling.
Interest rates have also climbed. While this may reflect expected inflation — generally a positive for commodity prices — it could raise the cost of financing for producers already damaged by the oil bust.
“If the availability of credit diminishes and interest rates start rising, the ability of producers to spend and raise domestic production would fall, with sky-high interest repayments weighing on the bottom line,” says Energy Aspects, a consultancy.
Allowing more drilling on federal land is unlikely to move the supply needle, analysts say. That is because the states underpinning the shale oil boom have little of it.
Wyoming is one state where the share of oil production on federal land is significant — more than half its 86m barrels in 2015, according to the Wyoming Oil and Gas Conservation Commission.
John Robitaille, vice-president of the Petroleum Association of Wyoming, cites new federal rules as a “burden” but does not cite access to federal land as a concern. “With the exception of being in a city park or something like that, there really are no parcels that are off limits” for leasing, he says.
The Obama administration has restricted offshore drilling, leaving Arctic seas off the list when it scheduled the next five years of offshore lease sales last Friday. Alaska’s congressional delegation blasted the plan, calling it a sop to environmentalists.
However, oil exploration in the US Arctic had already stalled after oil prices collapsed and Royal Dutch Shell failed to find significant reserves with a well drilled in 2015.
Kevin Book, managing director of ClearView Energy Partners, a consultancy, says: “The market is going to control the spigot much more than a Trump administration, at least in the near term. Liberalising production on federal lands is not going to produce a lot of incremental supply. And liberalising production in offshore could produce a lot of incremental supply, but not for many years.”
A Trump administration could attempt to roll back rules such as one limiting methane emissions from new oil and natural gas facilities. Last week, the interior department issued a rule to cut flaring of waste gas on federal lands.
Yet abolishing these rules is “no simple thing”, says Mark Brownstein of the Environmental Defense Fund. It is unclear how much new supply would follow: in a regulatory impact analysis of the methane rule, the Environmental Protection Agency projected crude oil production in 2020 and 2025 would be the same with or without it.
The greatest questions may lie abroad. The prospect of thawing relations with Russia, currently under US sanctions, could increase supplies from the oil exporter. However, the hardline stance Mr Trump has suggested towards Iran raises the possibility of renewed sanctions on oil sales by the Opec member.
Amid the swirling questions, oil futures markets have charted an uncertain path. Since Election Day, WTI crude futures for delivery in December 2020 — the last full month of Mr Trump’s coming term — have risen only about $1.