This opinion piece presents the opinions of the author.
Both the U.S. and global benchmarks traded in a highly volatile market following Donald Trump’s upset victory in Tuesday’s U.S. presidential election. In after-market trading Tuesday night and into Wednesday morning, Brent fell to a 3-month low of $44.40 per barrel, and U.S. West Texas Intermediate (WTI) dropped to around $43 per barrel.
The front-month U.S. West Texas Intermediate (WTI) contract settled up .6 percent Wednesday on the NYMEX at $45.27 per barrel, while the Brent front-month contract rose .7 percent on the ICE to $46.36 per barrel. Oil was largely swept up with the broader market, which reversed course after the S&P 500 Futures dropped over 800 points Tuesday evening off newsflow that Trump had pulled ahead of presidential front-runner Hillary Clinton.
Despite the gyrations in the market, traders still focused on the fundamentals, which were looking relatively bearish before the Wednesday morning data release from the Energy Information Agency (EIA). The American Petroleum Institute (API) had reported after the market close on Tuesday a 4.4 million barrel build to crude inventories for the week ending Nov. 4 – the second week in a row that oil stocks rose significantly. The API also estimated that gasoline inventories fell 3.6 million barrels and distillates (including diesel and heating oil) inventories decreased by 4.3 million barrels.
For the week ending Nov. 4, the EIA reported in its closely watched Weekly Petroleum Status Report that crude inventories rose by 2.4 million barrels, versus analyst estimates for a build of about 1.5 million barrels. Gasoline inventories fell by 2.8 million barrels and distillates drew by 1.9 million barrels.
The EIA also reported that U.S. oil production rose by 170,000 barrels per day week over week to 8.7 million barrels per day. Crude inventory levels – at 485 million barrels – remain at the upper end of the average range for this time of year. Weekly gasoline and distillate stocks are both above the upper limit of their respective seasonal average ranges. U.S. refineries operated at a utilization rate of 87.1 percent, up from 85.2 percent during the previous week.
The results of the U.S. presidential election has added a new dimension to the discussion around OPEC’s proposed production cuts – the details of which are to be hashed out at the next official meeting of the Organization of Petroleum Exporting Countries (OPEC) to be held Nov. 30. The market had already been growing exceedingly pessimistic around OPEC and other large producers actually agreeing to an output cut of up to 700,000 barrels a day. Even if a deal to cut output eventuates, it would not be substantial enough to contend with a supply overhang that some estimate is as high as one million barrels per day and slowing global demand.
With Trump as the president-elect, the U.S. oil industry, especially the onshore shale players can look forward to possibly fewer regulations around permitting, and potentially the easing up of the leasing process to drill on federal lands. With lower operational costs as a result of fewer regulatory hurdles, it may prove economically feasible for oil companies to ramp up production despite persistently lower oil prices. OPEC and other large producers will need to weigh up the possible onslaught of incremental U.S. crude supplies coming onto the world market against their own interests in maintaining and growing market share. In addition, a Trump victory could portend even slower global economic growth which could further impair already sputtering global crude demand.
Delia Morris has worked in the international upstream oil & gas industry for over 12 years, and is currently Director, Global Energy Sector at Stratfor, a geopolitical intelligence firm that provides strategic analysis and forecasting services. Please contact Delia at firstname.lastname@example.org
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