COVERAGE AREA and macrothesis

In our view, Trump Administration deregulatory actions directed at the oil and gas upstream remain, over the near term, more likely to deliver operator-specific upside than a broad and globally significant oil supply response. In the intermediate-to-long-term, the opening up of the Arctic National Wildlife Refuge (ANWR) in last year’s tax bill and planned leasing of currently off-limits areas of the Outer Continental Shelf (OCS) – in the right price environment – could draw meaningful investment and add to U.S. output. Looser rules for overburden disposal from mountaintop mines and ongoing discretionary enforcement of safety standards seem likely to improve coal miners’ margins, but current natural gas wellhead prices give gas strong fundamental positioning for power sector market share despite these policy interventions into coal production. In any case, both fuels face demand-side risk from stagnant load growth and state-controlled renewables mandates.

Brent oil prices gained ~$19/bbl during 2H2017 due to a combination of increased demand, falling petroleum inventories and rising geopolitical tension. We anticipate that growing U.S. oil supply could make it difficult for OPEC to reduce petroleum inventories further in 2018. Absent a supply disruption, we think Saudi Arabia and Russia may need to act in concert to reduce oil supply below oil demand during 2018. As growing liquefied natural gas volumes tighten links between the world’s three principal markets (North America, Europe and Asia), major gas price markers around the world are converging. We expect an increase in pipeline takeaway capacity to unlock Appalachia gas supply in 2018, some of which will be directed to recently built liquefaction capacity on the U.S. Gulf Coast. Globally, we believe rising demand and storage in China could impact gas prices as soon as 2019.

Our coverage provides clients with as-needed research notes, reports and flash blasts, and our soon-to-be-released, new quarterly product, Themes, Trends and Discontinuities, will contextualize recent developments and outline our forward-looking projections of relevant economic and policy outcomes.

Updated: January 8, 2018.