One of the most hyped annual events on the energy calendar is taking place this week in Houston. CERAWeek, a weeklong conference hosted by IHS Markit, features all of the top global energy CEOs and many of the most powerful energy ministers.
Many investors’ eyes were on the Monday morning meeting between Khalid al-Falih, the Saudi energy minister, and Alexander Novak, the Russian energy minister, hoping for some indication of whether the OPEC and non-OPEC production cuts will be continued. Others will be looking for hints from CEOs of American shale companies about their capacity and short-term production plans.
However, perhaps the most important words for energy investors will come on Thursday, when Scott Pruitt, the new U.S. Secretary of the Environmental Protection Agency, and Justin Trudeau, the left-wing Canadian Prime Minister, will separately share the stage with Daniel Yergin, the event chair.
Their appearances both have potential to provide vital insights to investors about the future of North American oiland natural gas production, because after years of technological advancement, the greatest restraints on North American producers have been government regulation and the price of oil. If the price of oil rises above its current plateau and exceeds $60 or beyond, the extent of government regulation in North American will be the deciding factor in levels of production in the U.S. and Canada.
Justin Trudeau has been in office for almost a year and a half and has had to walk a fine line on energy. He is a leftist politician from the Liberal Party that supports environmental protection policies, but he is also the Prime Minister of a country that relies on the production of carbon-based energy for economic growth. In 2010, when the price of oil averaged around $80 a barrel, energy accounted for 22.5% of Canada’s merchandise exports. Without energy exports, Canada would not maintain a positive trade balance. Trudeau has been in office for more than a year, but the possibility remains that he might still effectively impose production cuts via regulation and legislation, which would raise the global price of oil.
Scott Pruitt, the newly confirmed U.S. Secretary of the EPA is seen as very much in favor of carbon energy production. As the former attorney general of Oklahoma, an energy-rich state, he often fought protracted legal battles on behalf of the energy industry and against the EPA, the agency charged with protecting the environment and which he now leads. Will the EPA under Pruitt become more lenient in granting permits to energy producers over the next four years? Relaxed environmental regulations in the U.S. would entice domestic and foreign energy companies to invest in and develop U.S. energy resources. Ultimately, this would likely lead to further over-production of U.S. shale oil and a decrease in global oil prices.
The policies coming out of the new Trump administration and the Trudeau administration, could, in fact, do much to move the price of oil.
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