×

Here’s how Trump’s energy policies may impact oil output, prices

U.S. President Donald Trump has promised to boost the U.S. fossil fuel industry and create more jobs by opening more areas to drillers, but there will be little real impact on the market in the short term, an energy consultant said on Wednesday.

"Opening up the environmentally sensitive areas that Obama had closed could make a difference that could increase conventional fuel production by 1 million barrels per day (bpd) or more, but that would take five to seven years, so in the short-term, there's no impact," said FGE founder and chairman, Fereidun Fesharaki.

The shale industry is likely to see just marginal benefits from any tax relief passed by the Trump administration, he added. Talk has swirled about a possible border tax of as much as 20% on imports including crude, which if passed could lead to aid domestic producers over supplies from abroad.

As well, last week Trump signed executive orders advancing both the controversial Keystone XL Pipeline and the Dakota Access Pipeline, based on approvals. Additionally, he signed orders expediting environmental review and approval process for high-priority infrastructure projects.

The president's moves have sparked hopes and spurred expectations that a number of other oil and gas projects that were languishing will be resurrected.

"There's all sorts of good, positive news for the oil business but no real impact on oil production; certainly nothing in next year or two," Fesharaki added to CNBC's Squawk Box.

His comments come as a Reuters survey found high compliance by members of the Organization of the Petroleum Exporting Countries (OPEC) to curb oil output which is set to fall by more than 1 million bpd this month. The drop signals a strong start by the group in implementing its first supply cut deal in eight years. Previous cuts in 2009 saw an initial compliance rate of 60 percent.

OPEC agreed to cut its output by about 1.2 million bpd from Jan. 1 for the first half of 2017 to boost oil prices. OPEC has also coordinated with other producers led by Russia for a total cut of nearly 1.8 million bpd.

Supply from the 11 OPEC members with production targets under the deal has averaged 30.01 million bpd, according to the survey based on shipping data and information from industry sources, down from 31.17 million bpd in December, Reuters reported.

Oil pumpjacks in the Permian Basin oil field are getting to work as crude oil prices gain.
Spencer Platt | Getty Images
Oil pumpjacks in the Permian Basin oil field are getting to work as crude oil prices gain.

Crude oil prices gained on the news of strong OPEC compliance, closing higher on Tuesday. They are flat in Asian hours on Wednesday with benchmark U.S. West Texas Intermediate moving around $52.70 a barrel while international benchmark Brent crude was around $55.40 a barrel.

With crude oil prices jumping some 20 percent since the commitment to cut output was announced, prices have moved in the $50-$55 a barrel band—just enough to spur U.S. shale production in the Permian Basin but not in other higher cost regions, Fesharaki said, referring to a geologic formation in West Texas and New Mexico.

He estimates a 300,000-400,000 barrels a day ramp-up in Permian production as oil prices move in that price range, a level the market can still easily absorb now.

If prices push above $60 a barrel however, U.S. oil production will increase by 1 million barrels a day, a level the market will not be able to absorb it, he said.

"Once you go above $60, very bad things will happen." -Fereidun Fesharaki, FGE founder and chairman

"Keeping it in this range of where it is today is very important because it only allows one important part of the U.S. production—Permian Basin—to come in. Bakken and Eagle Ford are still high-cost to come in at this price range," he added, referring to geologic areas in North Dakota and the Texas-Mexico border respectively.

Fesharaki forecast Brent oil prices at $54-$55 a barrel in the first quarter of 2017 that will move toward $60 by the end of the year when de facto OPEC leader Saudi Arabia is likely to impose a $50-$60 a barrel price band.

Follow CNBC International on Twitter and Facebook.