Oil Price and US Politics: Peak Uncertainty
The political outlook – from the US elections and Brexit to the Middle East – has not looked more uncertain than it does now for at least a decade or two, the economic and political researcher Andrei Belyi told NGW in an interview.
"The challenges in the developed world explain the instability in the dollar exchange rate: that often impacts on the oil price more than do the usual supply-demand dynamics. As a result, Opec’s latest attempt to strengthen the oil price has had only limited success because of the uncertainty regarding the political landscape in the US, the dollar exchange rate and stagnating demand.
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"The oil price is not solely a question of buyers and sellers; Opec plays a relatively minor role in price formation in conditions such as these; it will take a healthy global economy to drive the price up. The situation is somehow reversed from earlier times: rising oil prices often reflect a positive signal in the general economic growth. By contrast, a low price is associated with further political instabilities and lower cash flows. Low oil prices mean longer delays in repaying debt and and so further investment doesn’t happen and then there is a supply crunch.
"For energy, the implications of the US elections are quite significant. Donald Trump is surrounded by oil industry interests more than is the case with Hillary Clinton. If he wins, the energy secretary could be the former head of Continental Resources, Harold Hamm. Based on his various speeches, he is keen to see the US remain self-sufficient and develop its own resources rather than intervene in the Middle East.
"This view is all of a piece with Trump’s isolationist vision. Moreover, Russia has been in the focus of this presidential campaign. Improving relations with Moscow directly affects the interests of ExxonMobil. The largest US oil producer has already lobbied for the US to take a softer line on Russia, where its operations with Rosneft are in suspension. If Trump lifts the sanctions that could mean it returns to the Kara Sea.
"In the meanwhile, Hillary Clinton is taking the opposite view on Russia, which she perceives as a threat. There is no such a direct relation with the hydrocarbon industries in her campaign. Although Clinton and Trump are diametrically opposed on Russia, Trump might become a lot less predictable than Clinton for Moscow. In fact, we should not rule out the possibility of Russia-US relations deteriorating, whoever wins."
William Powell
Andrei Belyi is Associate Professor at the University of Eastern Finland, Centre for Climate Change, Energy and Environmental Law.
Please see the forthcoming issue of Natural Gas World on November 16 for the full interview.