Monday, December 19, 2016

Hard for oil price to exceed $50 under Trump’s presidency

USA has a large reserve of shale oil in federal lands.

President Obama is not opened to the drilling of shale oil in federal land, but Trump is.

It makes business sense because by renting out or leasing out the land for drilling of shale oil, the government gets income.

It gets direct income by the rental or leasing of the land.

It gets indirect income by taxing the businesses and employees involved.

With the increased income and the low oil price, US can fund a lot of infrastructure works in the country.

It makes a lot of sense to keep oil price low, so the cost of transportation can be kept low.

In this way, a lot of jobs are created in the economy. 

The people, especially the laborers, will be glad of the low oil price, and the number of high paying jobs available in fracking operations and construction.

The breakeven cost for shale oil operators vary from well to well.  Apparently some operators are profitable as long as oil price is above $25.

However, by keeping oil price below $50 and above $40, a number of shale oil operators will be profitable.

The US government can lower the production cost by leasing out large tracts of federal lands to a few large operators.

In view of the strengthening of US dollar, and the resolve of Trump to gain energy independence, it is hard to see how oil price can stay above $50 despite OPEC countries cutting back on production.

The only way for oil price to break above $50 is for a major disaster to happen in fracking operations.

Other than that, it is apparent that fracking operations will produce massive volume of oil for the consumption of US and the world.

I think for the foreseeable future, it is best to stay away from the investment of traditional oil and gas giants.

For Singapore companies in the oil and gas industries, they will have a difficult period of another 4 years.

I sure am glad that I do not hold shares of Keppel Corporation, and Sembcorp Marine.

I do not see how they can get more orders for oil rigs when oil price is kept low.

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