Will Donald Trump manage to swing the power to price crude oil in America’s favour?

Will Donald Trump prove to be a party spoiler for both Opec and non-Opec members? If what he has signalled till now is any indication, industry observers believe that Trump could restrict high volatility in the crude oil prices, that is expected following the Opec decision to reduce output.

Most industry observers BusinessLine spoke to believe that even if the President-elect of the US actually implements what he has been advocating during his campaigns — increasing US crude oil production leading to lower prices — it will at least take two years before the impact is seen on ground.

Trump has been very vocal about energy exploration and boosting private sector energy infrastructure projects. A causality of low oil prices has been America’s shale industry, as oil wells go out of production.

Shale, which was seen as small or medium scale industry, had taken a hit because of low oil prices, as drilling and evacuation become unviable.

“We will soon discover whether the swing production capacity that was in the hands of Saudi Arabia has now moved into the hands of the US shale producers. If it has, then the power to price crude will no longer be with Opec,” said Sunjoy Joshi, Director, Observer Research Foundation (ORF), specialising in energy, climate change and development studies.

No sooner than the Opec decision to cut output was made public, oil prices started moving upwards. In fact, the decision has not yet been opposed by the non-Opec countries like Russia as well as consumers such as China, India, South Korea and Japan.

“This is after several years that Opec has managed to agree on the production cut unanimously, with tactical participation of non-Opec biggies like Russia. What unites them, however, is their sole goal to somehow push crude oil prices up to $60 a barrel if not more, on short-to-medium term basis. They may not want to push prices to a very high levels like $80 or $100 because any such move would lead to further incentivisation of renewables which would be to their disadvantage,” said energy expert Narendra Taneja.

Large importers like India and China seem to have designed their economies to easily absorb the hike upto $60 a barrel with decontrolled petrol and diesel prices coming as supporting systems already in place, Taneja added.

Though, most agree that the latest decision will be a booster for the shale industry, they also believe that it will at least take two years before any impact of Trump’s decision will be visible. “Besides, in the US, the decision will also be taken by small producers. It has to been seen how many are willing to take up the challenge,” an official with Indian exploration company said.

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