We are entering a fast changing landscape in energy with the surprise election of Donald Trump. I will say, first and foremost, that despite the intuitive reaction that the election of Trump will be fantastic for oil and gas companies, I believe that the opposite is more likely to happen.
Oil and gas production in the US during this price bust has been slowing far less quickly than I first imagined. That continued glut has forced OPEC – or at least the Saudis – to push hard for a production agreement at their upcoming meetings, convinced that they can no longer ‘wait out’ the incredibly robust US shale producer to rebalance the global markets for them. But, ahead of these critical Vienna meetings, all of the OPEC participants, and non-OPEC possible co-signers like Russia, have been falling over themselves to quickly ramp up production, with the idea of presenting their ‘baselines’ of production at as high a level as they possibly can. Higher baselines would yield less onerous commitments to cut in any possible agreement.
This ‘chasing the tail’ strategy of OPEC and Russia is obviously counterproductive to the hope of a quick rebalancing effort, even if a deal is struck later this month – never mind being incredibly bearish if it isn’t.
Inject into this the deregulation expectation and free energy export policy of an incoming Trump administration. What this does for US producers is give an even more clear path to re-ramping production themselves, adding on to a global glut problem that was, at least slowly, beginning to clear.
In essence, all signs are now pointing to a much more extended oil and gas bust cycle than we had originally planned for.
That does not empty the oil and gas space of opportunity, quite the contrary, but it does make the strategies we need to consider change quite a bit.