OPEC – NON OPEC Deal has certainly helped oil to enter bullish trend once again. But I have reasons to believe that oil is going to slip towards bearish market sooner than being anticipated. Crude oil prices rose above $56/bbl for the first time in 2016 after OPEC and Non-OPEC reached an agreement over the weekend to jointly cut oil output. The news is definitely doing rounds in petroleum circles lately and would provide oil prices a necessary cushion to stay above $50/bbl for some period, even I won’t be surprised if it enters into $60/bbl. But I bet that euphoria going to fade very soon.
Although, Saudi did everything to suppress increasing supplies coming from U.S. Shales but couldn’t succeed. OPEC surrendering before U.S. and changing their two years long pump-at-will policy clearly demonstrates that grandpa has lost dentures. Saudi knows that U.S. Shale factor is too strong to be quashed now. In my opinion, Saudi is doing all this to make most out of scheduled IPO of Saudi Aramco.
On the other hand, Trump is just getting started to add sufferings to ailing Saudis by appointing pro-oil folks (Rex Tillerson, Harold Hamm, Scott Pruit, Rick Perry) on key positions in his cabinet. Scott Pruit is being considered favorite for helming Environmental Protection Agency (EPA). He has been open advocate of slashing stringent regulations over oil and gas exploration making conditions favorable for oil and gas companies operating in U.S., he believes in opening more lands for Oil and Gas Exploration which was previously thought to be sensitive. In short, Trump would do everything to let U.S. Shale Producers hit the ground running, may it be slashing heavy taxes on oil and gas industry, relaxing tough regulations, opening more lands for Oil and gas Exploration, and even approving controversial pipelines like Keystone XL and Dakota Access Pipeline.
U.S. Rig count & crude oil inventories have already started rallying upwards in Permian and Eagle Ford Basins (Texas) which means glut is not going anywhere, market will remain swamped with oil for months to come.
For short term, it may appear to be a win situation for U.S. Shale producers, but I see things getting nasty for the oil industry in long term.
Petro 360 