Brexit, Trump and an OPEC cut

Nov 9, 2016 11:25:01 AM EST

Things come in threes, so after the unexpected Brexit result earlier in the year, and Donald Trump's surprise election victory overnight, it would appear we are destined for an unlikely OPEC production cut at the end of the month. Hark, here are six things to consider in oil markets today:

1) In terms of what we know about our President-elect's view on energy, his vision is very much skewed supportive for the U.S. oil, gas and coal industries. While much is still unknown, his focus appears on cheaper - as opposed to cleaner - energy.

His energy plan indicates a desire to eliminate the moratorium on coal leasing, and open onshore and offshore leasing on federal lands. The ultimate goal appears to 'become, and stay, totally independent of any need to import energy from the OPEC cartel or any other nations hostile to our interests'.

2) It is a monumentally big ask for the U.S. to become independent from importing energy from OPEC. Crude imports from the cartel are actually up 18 percent through October versus year-ago levels, averaging 3.2 million barrels per day:      

OPEC to US Nov 2016 ClipperData.jpg

3) As for natural gas, we are still a net importer, but 2015 represented the lowest level of net imports since 1986. The U.S. is expected to become a net exporter next year, with Canadian imports fading, while both exports via pipeline to Mexico and LNG terminals are set to increase.

natural gas imports and exports.jpg4) The switch to becoming a net exporter is being accelerated by LNG export terminals coming online. As our ClipperData illustrate below, Sabine Pass exports started in February, and 31 loadings have left through October, and to fourteen countries:

US LNG exports.jpg

As four more export terminals come online in the coming years with permitted capacity of 6.5 Bcf/d - Dominion Energy's Cove Point terminal next year, Cheniere's Corpus Christi terminal in 2018, Sempra Energy's Cameron terminal in 2018, and Freeport's terminal in 2019 - U.S. exports will continue to ramp up strongly.

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5) There is also the expectation that the President-elect will repeal the Clean Power Plan, which was put in place last year to reduce carbon pollution from power plants. But as the chart below from Bloomberg illustrates, renewables should continue to grow regardless, as they become ever more cost competitive - even without subsidies - while coal plant retirements are set to continue (to the tune of ~60 GW by 2030).   

The EIA projects that renewables will grow by 4 percent a year until 2040, accounting for a 23 percent share of the generation mix at this point. 

renewables clean power plan.jpg

6) Finally, our ClipperData is used in this article in the print edition of today's Wall Street Journal, highlighting how global waterborne loadings this year are at a record, as are OPEC exports. In case you missed it, the below chart is incredible, illustrating how OPEC weekly exports hit a record in recent weeks:

OPEC weekly exports.jpg

About the Author

Matt Smith

deciphers and distills what is most relevant across the energy complex into cohesive and pithy knowledge you can use. The belly laugh is a bonus.

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