Oil Price Will Stabilize
The price of oil should finally stabilize in 2017. OPEC, coming off its productive meeting at the end of November, is once again saying the right things and working towards cooperation to limit production and raise prices.
The OPEC production cuts may never be implemented fully and likely will not last for too long, and further hurdles remain to bringing the full range of non-OPEC producers on board, but the movement is now clearly in the direction of combined production limits.
The impact on Tehran of the soon to be inaugurated Trump administration should also be favorable for oil prices, with the possibility of renewed sanctions and the certainty of added unease for foreign firms considering investments in Iran. The messages coming out of OPEC and Russia alone, will create price spikes, while the actions should set a floor price of at least $55.
Big Oil IPO
The Aramco IPO—coming either in late 2017 or in 2018—will be a success. Aramco is too well run and controls resources that are far too valuable for it to not succeed. However, investors will need to understand that the company will still be run by the Saudis and investors will only be along for the ride.
Renewed Life for Some Shale Oil Producers
In the U.S., higher oil prices will bring renewed life to some shale producers. Changes in government policy, brought by a new and friendly Republican administration, will open opportunities for a myriad of energy-related investments and businesses.
Drilling on Federal land and offshore, especially along the Southeastern coastline, will be easier for small and large producers alike. Energy infrastructure projects, including pipelines, will see renewed possibilities as well. However, railroads as a transportation for oil will suffer if pipelines become preferred once again.
As was the case last year, a safe prediction is that:
“with continued low crude oil prices [below the 2014 highs of $112bbl], decreased global passion for climate change, and… a Republican administration in the White House, investors should be wary of renewable and clean technology in the long term.”
Even when oil prices stabilize, it will be a while before they reach the high double digits that precipitated such economic interest in alternative energies.
Moreover, the global mood is turning against climate change fear. President-elect Trump has stated multiple times that he supports “all” forms of energy, but investors should expect that any changes in the U.S. tax code will hurt alternative energy and electric car startups. The Department of Energy will likely alter or lessen its venture-capital-like behavior as well, providing less Federal assistance to alternative energy businesses.
Global and US Oil Refinery Upgrades
For more risky opportunities, consider refining projects in both India and the U.S. While India is not likely to become the next China for energy consumption purposes, India is now the third largest energy consumer and will be particularly in need of enhanced refining capacity.
American refineries are also in need of an upgrade, particularly to handle the volume and type of shale oil produced. Before the U.S. is able to increase its refining capacity, however, look for U.S. oil exports to pick up in 2017.