Bill Loveless

for USA TODAY

The election of Donald Trump as president raises the hopes of oil and natural gas producers, thanks to his full-throated support for the removal of regulations that many say hamper the industry.

Only time will tell if the Republican’s policies will provide much more of a boost to U.S. oil and gas, which has rallied in recent years thanks to technologies that enable production from previously untapped shale reserves.

Moreover, it’s price, not government regulation, that really determines the extent of oil and gas exploration and production, as Thomas Watters, a managing director with S&P Global Ratings, observed the other day.

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Asked during a webinar sponsored by the ratings agency what impact Trump’s pro-drilling stance would have on producers, Watters said offering an answer is difficult because the president-elect’s statements on oil and gas are “lacking in detail at this point.”

“It’s clear that he’s talked about relaxing environmental regulations, and that would obviously bode well for the drillers and what not, and that would include opening up some federal lands that have been restricted, both onshore and offshore,” Watters said. “But just to be clear, the drilling activity ... that we have seen in the U.S. wasn’t due to regulation, it was due to economics. So, at the end of the day, it’s going to be about where oil prices are and how producers react to that.”

On that score, much rides not on Washington but on OPEC and whether Saudi Arabia and other members of the oil cartel reach an agreement to limit production when they meet in Vienna on Nov. 30.

Without an accord, “we do believe that oil could touch below $40 a barrel in the near term," Watters said.

That would spell more bad news for producers, who have seen prices for West Texas Intermediate rally from a 13-year low of $26.21 a barrel Feb. 11 to $50.43 Oct. 20, though they’ve fallen since then to $44.66 Thursday.

It was no coincidence that downgrades surged among exploration and production companies rated by S&P in the first quarter of 2016, a trend that tapered off as prices recovered in the following months.”

“Prices were going off the cliff,” Watters said of that period early this year. “It was like trying to catch a falling knife.”

If OPEC fails to strike an agreement this month, producers in the USA and around the world face the risk of another downturn in prices, he warned.

That said, striking a deal will be difficult for the oil cartel, which is producing at record levels.

The International Energy Agency estimates that OPEC members pumped 33.8 million barrels a day in October after production recovered in Nigeria and Libya and hit an all-time high in Iraq. That’s nearly 1.3 million barrels a day above levels one year ago and well beyond the production ceiling of 32.5 million to 33 million barrels a day that the cartel set as a goal at a meeting in Algiers in September.

“We can’t predict the outcome of the 30 November meeting, but we can see the scale of the task ahead,” the Paris-based IEA noted in a report last week.

Moreover, OPEC is not the only factor at play in global oil markets. The IEA projects a 500,000-barrel increase in daily output from Russia and other non-OPEC countries in 2017.

“If the OPEC countries do implement their Algiers resolution, the resultant production cut will see the market move from surplus to deficit very quickly in 2017, albeit with a considerable stock overhang that will take time to deplete,” the IEA said. “On the other hand, if no agreement is reached and some individual members continue to expand their production, then the market will remain in surplus throughout the year, with little prospect of oil prices rising significantly higher. Indeed, if the supply surplus persists in 2017, there must be some risk of prices falling back.”

U.S. shale producers, hoping for a jump in prices, will continue to drive better deals with their contractors and find ways of operating more efficiently at lower prices.

“We saw the (drilling) rig counts come back at around $50,” Watters said. “Some of the shale plays that didn’t work economically start to become more viable. If oil would go to $60, an awful lot of shale plays become very viable.”

Bill Loveless — @bill_loveless on Twitter — is a veteran energy journalist and podcast host in Washington. He is the former anchor of the TV program Platts Energy Week.