Investors bet Trump climate withdrawal to boost US oil drilling

AFP , Friday 2 Jun 2017

Oil
The Valero St. Charles oil refinery is seen during a tour of the refinery in Norco, Louisiana, U.S. (Reuters)

The price of oil has fallen sharply as investors bet that President Donald Trump's decision to pull the United States out of the Paris climate agreement will increase the country's oil and gas production.

The cost of a barrel of crude slumped 2.4 percent, or $1.18, to $47.18 in electronic trading in New York on Friday, hours after Trump said the U.S. would immediately stop implementing the Paris deal. He said his administration could try to renegotiate the existing agreement or try to create a new one that is more favorable to the U.S.

The deal would have required the U.S. to reduce polluting emissions by more than a quarter below 2005 levels by 2025, potentially limiting the growth of high-emissions industries like oil and gas production. Economists, however, say that the climate deal would likely help create about as many jobs in renewable energy as it might cost in polluting industries.

U.S. oil production has already been increasing in recent months since the price of crude came off lows last year, making expensive shale oil extraction more economically viable.

"Now that U.S. President Trump has announced that the U.S. will be withdrawing from the Paris Climate Agreement, it is expected that the U.S. will expand its oil production even more sharply," said analysts at German bank Commerzbank.

The increase in U.S. production is neutralizing the efforts of the OPEC cartel and other major oil-producing nations, like Russia, to support prices by limiting their output. OPEC and 10 other countries led by Russia agreed last week to extend for nine months, to March, a production cut of 1.8 million barrels a day initially agreed on in November.

On Friday, the head of Russia's state-controlled Rosneft oil giant said that that a rise in shale oil output in the U.S. would likely offset the effect from the OPEC and Russian production cuts.

Speaking at an economic forum in St.Petersburg, Rosneft CEO Igor Sechin said that the OPEC and Russian cuts fall short of "systemic measures that would lead to long term stabilization."

He said that thanks to increasing efficiency, U.S. shale oil producers would likely deliver an additional 1.5 million barrels of crude a day to the market in 2018.

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