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Donald Trump

Trump’s first 100 days: Oil, precious metals and agriculture

Whether it be oil, agriculture or precious metals, large scale global events can have a major impact on the commodities markets.

But how, if at all, have the first 100 days of Donald Trump’s presidency impacted these sectors? A number of analysts across Thomson Reuters commodities businesses have taken a look at what has happened in their respective industries during Trump’s first 100 days in office.  

Oil industry

Commenting on how the oil industry has performed during Trump’s first 100 days, Serkan Sahin, Senior Oil Analyst at Thomson Reuters commented:

“Leading up to and during the election it was suggested energy policy would be more supportive of the Hydrocarbon industry under a Trump administration. We have seen some early indications of this but the President’s energy policy has still yet to be formalized. With the exception of U.S. airstrikes against Syrian government air bases in mid-April, direct action from the White House has not significantly impacted the oil market, which remains primarily driven by fundamentals.

As expected after President Trump’s inauguration in January, the federal government has been more accommodating of hydrocarbon producers, particularly oil and gas operators, in energy policy. The Dakota Access Pipeline (DAP), one of the most controversial subjects during President Obama’s term, was quickly approved after President Trump signed an executive order to complete the final stage of the pipeline – in one of his first acts in government. The pipeline, with an operating capacity to carry about half of Bakken oil output from North Dakota to Illinois, has been granted permission to commence operations following approval in February. Oil operations in Bakken have been impacted significantly from the crude oil price decline of 2014-15, largely because of high transportation costs to ship crude out to major demand locations. Crude-by-rail transportation was the primary mechanism to transport Bakken crude to the East Coast, which in turn was raising wellhead breakevens to levels that impacted Bakken crude’s competitiveness against foreign imported grades.

Thomson Reuters Oil Research estimates that the commissioning of DAP pipeline would assist Bakken output in experiencing a marginal recovery during 2017. We are expecting crude oil output in the Bakken shale play to stop declining from April 2017 at a level of around 964,000 bpd. We expect output to increase by 11 percent to around 1.07 million bpd by the end of the year. DAP is expected to carry half of production volumes which would support drilling activities mainly in McKenzie and Williams counties in North Dakota. However, we do not expect a major recovery in Bakken output as production activities are likely to be limited by the capacity of the DAP and logistics limitations in completion operations, as experienced in Eagle Ford. Assuming a recovery in output from major shale oil basins, we expect total US output to reach 9.14 million bpd by December 2017, up 9 percent y-o-y.”

Crude oil output for major shale oil basins

Crude oil output for major shale oil basins - Thomson Reuters Oil Research
Source: Historical data-EIA,  Production forecasts-Thomson Reuters Oil Research

Precious metals

Ross Strachan, Precious Metals Manager from the GFMS team at Thomson Reuters looks at how the precious metals markets have responded to Trump’s administration thus far:

“One of Trump’s stated plans for his first 100 days was that he would withdraw the United States from the Trans Pacific Partnership and this duly happened in the first week with him signing an Executive Order.

In addition, the first 100 days since the inauguration of President Trump on January 20th are also on course to have seen significant price gains for gold and silver. At the time of writing, gold is up 7 percent in dollar terms and silver 6 percent. It is also worth noting that prices are also up 7 percent in RMB and euro terms, showcasing that this price rise has not been a function of dollar weakness. We would not suggest that this rally is solely a function of the arrival of President Trump; an improvement in Indian demand has also played a role. A rise in geopolitical fears, however, not least due to events in Syria, has clearly played an important part in the price increases – as we had forecast they would – and this has encouraged investment flows into both metals. Indeed, investor interest as measured by net long positions on COMEX have risen by 41 percent for gold and by 67 percent for silver since the inauguration.

Finally, the delay in enacting tax reforms is arguably a key reason why the dollar has not moved sharply, with the consequent knock-on implication for metal prices as stimulus plans have been postponed by political machinations on Capitol Hill.”

Agriculture

Daniel Redo, Head of Agriculture Research at Thomson Reuters, takes a look at what has happened in the agriculture industry since Trump took office and what the future may hold for the industry:

“The announcement carrying the most certainty is the need to appoint a new head of the U.S. Department of Agriculture or USDA, the organization that produces monthly reports, which form the benchmark of supply and demand estimates around the world. Each month, the reports garner global attention upon release as they move futures markets in one direction or another.

Another near certainty is that the new head will have less funding at his disposal. The budget for USDA is planned to be cut by $4.7 billion or 21 percent, the lowest levels since 1988. The proposed cuts to statistics departments and county level staff has the potential to add uncertainty into the market as USDA’s ability to invest resources into assessing supply and demand fundamentals becomes stretched. Farmers also rely on county level staff to make planting decisions and better manage risk.

The big wild card right now is the President’s view on the Renewable Fuel Standard (RFS). This key policy determined how much ethanol—produced mostly from corn—must be blended into fuel. RFS helped to drive the significant expansion of corn acreage after 2007. Corn acreage in the U.S. increased by more than 15 million acres or 19 percent from 2006 to 2007, the year RFS2 nearly doubled the required use of biofuel. The President publicly supported the RFS, but some of his key advisers in the oil and gas industry want to see important changes to RFS implemented with the most important being who ensures that gasoline has the correct 10.10 percent of ethanol in the blend—the refiner or smaller blenders and retailers. Should point of obligation change, it’s thought that overall compliance of biofuel levels would be difficult to enforce and costs for retailers would soar, leaving little incentive for retailers to offer ethanol blends at the pump. The alarm bells are ringing across the Corn Belt. The EPA is already rolling back low-carbon policies. The effects on the ethanol industry could be felt throughout the Midwest.”


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