President Trump’s vow to “unleash an energy revolution” by reversing regulations may send oil and natural gas prices tumbling in 2018, according to Bank of America Merrill Lynch.
Domestic oil and gas prices will likely suffer as the U.S. continues to increase its output, analysts including Francisco Blanch, head of commodities research, wrote in a note dated Feb. 3. Though U.S. oil and natural gas producers could see a surge in investment under Donald Trump’s numerous proposals from a likely reform of the corporate tax code to a possible border tax, prices may suffer from the resulting increase in output.
“The industry has high hopes for less red tape, a more pragmatic approach to regulation and lower costs of having to comply with climate change rules,” the analysts said. The impact of Trump’s policies will take months if not years to play out.
The implementation of such a tax would be a net positive for WTI versus Brent, but a net negative for refined petroleum product prices, the analysts wrote. Mexico exports 600,000 barrels a day of crude oil to the U.S. and buys large amounts of gasoline and diesel.
The jump in natural gas production combined with relaxing the Clean Power Plan will likely send prices lower through 2018. If Mexico reciprocates with its own border tax and sparks a trade war, natural gas exports and prices would be severely hurt at the Henry Hub, as the U.S. currently sends five percent of its annual gas to Mexico via pipelines. American companies are sending record amounts of gas south of the border, with exports touching 4 billion cubic feet per day.
However, many of Trump’s policies are unknown at this point and yet to be formed in detail, so it is perhaps too early to draw strong conclusions on how they may impact investment decisions and energy prices, the analysts said in the note.