Crude Economics
The First Impact of the Climate Deal Withdrawal

The real, measurable impacts of Trump’s decision to pull out of the Paris climate agreement are going to be few and far between, but the first one we’ve seen thus far has been a drop in the price of oil. This won’t hurt Trump with his voters: market participants think that the U.S. will now pump more oil, leading to long term lower oil prices. Reuters reports:

Crude fell more than 1 percent on Friday, heading for a second straight week of losses, on worries that U.S. President Donald Trump’s decision to withdraw from an international climate accord will spur further domestic production and contribute to a persistent global oversupply. […]

“Trump seems to be removing any barriers he can find that would obstruct growth of crude oil or natural gas,” said Stewart Glickman, energy equity analyst at CFRA in New York.

Let’s not give the White House too much credit here, though. The Obama administration, for all of its gesturing towards renewables, was remarkably friendly towards the shale industry. The recent growth we’ve seen in American production is the result of innovation and falling costs in shale drilling, rather than the rolling back of regulations.

But perceptions matter to markets, and Trump’s announcement yesterday has further strengthened analysts’ belief that this Administration will do everything it can to help out America’s oil and gas industry (even though the natural gas boom is responsible for knocking Old King Coal off his throne in the U.S.).

Russia is paying close attention to U.S. oil production these days, and the CEO of the state-owned oil company Rosneft, Igor Sechin, publicly expressed concerns that surging American supplies could overcome petrostate efforts to cut production and push prices back up. We certainly saw evidence of that in trading today.

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