As has been the case since the election of Donald J. Trump, Stratas Advisors' Geopolitical Team has been assessing the impact of the new administration on geopolitics, policies and regulations. This week Stratas highlight the team’s assessment of EPA Administrator nominee Scott Pruitt.
His criticism of the Obama administration's Clean Power Plan and advocacy of states' primacy over federal agencies in issuing environmental standards indicate that he would advocate that Trump roll this back. Pruitt would rely on congressional leadership for climate legislation, which will not be forthcoming under a Republican majority in both the House and Senate. Therefore, climate policy initiatives will most likely devolve primarily to the state level unless Trump's views on this issue change, which is not out of the realm of possibility.
Because of concerns about the impact of the new administration on the global economy, Stratas said it's shifting the firm's view that the geopolitics will be a positive factor to a neutral factor with respect to the price of Brent crude.
The number of operating oil rigs increased by 29, according to a report from the EIA. The increase represents the largest weekly increase since the collapse of oil prices that occurred in 2014. Since reaching a low of 316 operating oil rigs during the week of May 27, 2016, the number of operating oil rigs has increased by 235.
Since Jan. 9, the number of operating rigs has increased above the level of the same time last year. The number of operating oil rigs currently stands at 551, which compares to 510 during the same time period last year.
The majority of the rebound in oil rigs has occurred in the Permian Basin, which represents nearly 51% of total operating oil rigs.
Meanwhile, the EIA reported that U.S. oil production during the week was 8.944 million barrels per day, which was essentially unchanged from the previous week. U.S. production still remains below the level of the previous year, but the gap has fallen to 291,000 barrels per day.
With respect to OPEC and other major oil producers, it appears that there is adherence to the agreed production cuts. It appears that Saudi Arabia has reduced production to around 10 million barrels per day and that Russia has started to reduce production. We maintain that OPEC and Russia are serious about making the production cuts required to push oil prices higher.
For the upcoming week, Stratas said it's maintaining the firm's view that perceptions of supply will be a neutral factor with respect to the price of Brent crude.
In addition, Stratas said it's forecasting that the price of Brent crude will trade in the range between $55 and $56. The firm also expects the Brent-WTI differential will trade between $2 and $2.75 with respect to the March contract.
You can find other factors affecting oil prices this week at StratasAdvisors.com, including the U.S. dollar, refinery margins and gasoline supply.
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