Although business investment has been low overall in the past several years, the oil and gas sectors have been especially weak, with near zero investment growth since 2014. Crude oil prices plummeted in that year, forcing energy firms to cut spending across the board, but particularly investment. Prices seemed to have reached their bottom for the time being, however, and have gone up mildly. Oil and gas firms are now starting to grow their investment just slightly, but even increases by just a few hundred million dollars show an important rebound in expectations. If prices stay where they are or begin to increase more, investment is planned to rise commensurately. This could have some important ripple effects in the economy, such as increased business for manufacturing firms that help to produce oil rigs and other technology. I think another important contributing factor to energy sector investment growth is the vision of a Trump presidency. Trump has had a reliably pro-US energy message, and if he decides to loosen regulations, thus lowering firms' costs, and sign off on more pipeline projects, the prospects for growth in the American energy sector significantly improve.
http://www.wsj.com/articles/energy-firms-step-up-business-investment-1480329000
Price investment is more responsive to market signals then government spending. Domestic fracking will not necessarily make the U.S. a wealthier country, but will give a good chance at winning investment.
ReplyDeleteThis is a great article, as oil and gas is such an important production in many countries. It will be interesting to see what the OPEC countries do as far as changing their prices for oil, as this could affect how the United States decides to invest in oil and gas production.
ReplyDeleteAlso, it will be interesting to see if Trump is as austere as he claims he will be with countries like Saudi Arabia who he claims we protect without payment. If relations with someone like the Saudis becomes unfriendly then the US will have to produce a lot more of our own oil.
ReplyDeleteHopefully positive expectations continue to rise so investors can be more interested in the industry because the oil market will never rebound with near zero investment so we need more investors to take the risk.
ReplyDeleteIt indeed would be interesting to see how Trump would act the same as he claimed to be on certain issues. I agree with Tim that if OPEC decided to change prices for oil would affect how US invests on energy firms.
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