Under the plan announced by Interior Secretary Ryan Zinke, the government would offer for sale the largest number of oil and gas leases in U.S. history starting late next year.
The department also proposed reversing drilling-safety rules implemented after the 2010 Deepwater Horizon explosion, which killed 11 workers on the drilling rig and caused a massive oil spill.
The U.S. government hasn’t sold leases for oil drilling off of the Atlantic and Pacific coasts in more than 33 years, so the proposal is meeting broad opposition, including from environmental groups.
“It’s absolutely radical,” said Diane Hoskins, climate and energy campaign director at Oceana, an environmental group. “Expanding offshore drilling threatens the livelihood and the coastal economies that rely on a healthy ocean.” —Wall Street Journal Energy Report, 1/5/17
The polarization continues. Just as immediate was the response from the oil industry, which cheered the lease sale.
In a complete reversal of the Obama administration, Interior Secretary Zinke predicted the U.S. would become the strongest energy super power.
Predictably areas which tout the beautiful ocean waters as a tourist destination are also opposed to the idea. Florida’s Senator Marco Rubio and Governor Tim Scott oppose any drilling off the Florida Coast. The left coast of California, Oregon, and Washington State have also opposed the move.
Last month Congress approved lease sales in the Arctic National Wildlife Refuge. After failing to obtain permission most large oil companies have withdrawn from the Arctic altogether. With another election just months away, I suspect large oil firms will be reluctant to commit to long-term projects in such a politically volatile area.
Secretary Zinke has not solicited my advice on this matter. Obama’s reaction to the Deepwater disaster was to simply ban offshore drilling. If offshore leasing were expanding, I would think a detailed announcement of new safety regulation should have preceded the lease announcement. Canada requires an offset hole to be drilled at the same time. This would have lessened the impact of the oil leakage. Has the U.S. adopted such a measure? Have there been extensive discussions with firms like Transocean? The Administration should have made it clear that serious precautions would take place before approving any additional drilling. One can assume that if there is another accident, this administration will own it. Having opposed all things involving hydrocarbons, Obama escaped blame for Deepwater. That will not be the case for Trump when another accident occurs.
Today crude oil is off $.60 but still trading at $61.41. That is a big move up from the $44 low three months ago. But there is more good news. The energy service sector is breaking out to the upside from its long-term decline. The Service ETF XES cleared $17 this week. That seems to reverse the fall from $24 registered last January 2017. Bell weather Apache APA is attempting to break through its resistance at $46-47.
The cold in the Northeast has caused heating oil to top the $2 level, up from $1.75 just three months ago. Unleaded gasoline has not hit a new high, now trading at $1.80.
Natural gas is correcting its recent move from $2.60 to $3.10. It closed Thursday at $2.86.
And then there is the stock market. The Dow Industrials have soared from 15,500 registered in January 2016 at the 200 week Moving Average to 25,000. That is an incredible 64 percent move. But headlines suggest that retail investors have pulled some one trillion dollars out of stock funds since 2012. Clearly the memory of 2008-09 is still front and center for many. De-regulation by the Trump administration has raised expectations and energized the markets.
What could go wrong? As previously mentioned, there may be new safety regulations for offshore drilling. But the anti-Trump media will pounce on any ocean accident. I suspect President Trump is also making an error in linking the economy to the stock market. The Industrials have not re-visited the 200 week moving average since January 2016. The index is now an eye-popping 6,500 points above that 200-week MA. If Trump is taking credit for the rise, we can certainly bet the hostile media will hold him accountable for the inevitable correction.
Until that correction occurs, party on.