Friday, August 04, 2017

Energy Rhetoric Irrelevant in World of $50 Oil — Analysts

The Interior Department's pro-energy policies are doing little to kick-start an industry burdened by low oil prices. (Credit: Pamela King/E&E News) Click to Enlarge.
Six months into Trump's presidency, Interior Department actions to bring the United States to "energy dominance" have done little to boost confidence in a market where the price of a barrel of oil hovers just below $50.

Vincent DeVito, counselor to Interior Secretary Ryan Zinke for energy policy, has said the "level of optimism" the department hears from investors will be an important metric for measuring the success of the agency's energy policies.

But analysts say federal regulators can do little in light of the reality that crude prices are now about half what they were at the peak of the U.S. drilling boom.

"If oil prices were as low as they were 18 months ago, the best rhetoric in the world could not change the fact that companies are suffering from low oil prices," said Pavel Molchanov, senior vice president and equity research analyst at Raymond James & Associates Inc.  "When oil was $100 a barrel, the fact that the rhetoric out of the Obama White House was not as friendly to oil did not make any difference.  The industry was in fantastic shape.  It was going gangbusters.

"Fundamentals are what count.  For this industry, commodity prices are what count."

The number of active rigs in the United States — the best indicator of a revival in the oil patch — is up 495 from last year, according to Baker Hughes data.  But that has nothing to do with politics, Molchanov said.

"It has everything to do with the level of oil prices," he said.

Interior's moves to open up offshore drilling in the Alaskan Arctic and along the Atlantic coast are also unlikely to spur major new activity, Molchanov said.

"Industry does not want to drill in those places right now because prices are relatively weak," he said.  "The idea that companies would jump at the chance to drill in the Arctic is somewhat of a fantasy."

Limitations to Interior's power over the energy industry stem from the agency's restricted scope.  Interior controls activity on federal lands, but the hottest U.S. shale plays — such as North Dakota's Bakken Shale and Texas' Permian Basin — are located primarily on state and private land, Molchanov said.

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