For the first time in 8 years, OPEC members have voted to reduce their collective output by 1.2 million barrels per day. The cut amounts to an approximately 3.5% reduction in OPEC production and, combined with reductions in Russian output, will be sufficient to trim total global oil production by about 1%. The immediate reaction in energy markets, with prices surging upward, no doubt gives OPEC renewed hopes of relevance in a global energy market that has seen several non-OPEC members emerge as key producers.
First on that list, of course, is the United States, where improved production techniques have led to a dramatic increase in output of both oil and natural gas in recent years. Having weathered the slump in energy prices, the producers left in the market today are in a strong position to compete globally. According to Rystad Energy, “The breakeven cost per barrel, on average, to produce Bakken shale at the wellhead has fallen to $29.44 in 2016 from $59.03 in 2014”, a remarkable move in such a short time span. While it may take up to a year for conditions on the ground to improve for U.S. producers, the cuts from OPEC and Russia are clearly good news for places like North Dakota and Texas, which can expect to see increased activity going forward.
As the shock of the Trump election wears off, markets and policy makers are turning their attention to the future and trying to determine what policies a Trump administration is likely to pursue. One thing that has garnered much attention is Trump’s intention to dramatically increase infrastructure spending. While this is the sort of investment that generally attracts support from across the political spectrum, coupling such spending with Trump’s proposed tax cuts is making fiscal conservatives nervous about the potential for an exploding deficit. With yields on the 10 Year Treasury up almost 30% since the election, there can be little doubt that market participants throughout the world are watching carefully and will demand an increased yield if we appear poised for an era of debt fueled spending.
The U.S. Energy Information Administration (EIA) is a division of the Department of Energy tasked with collecting and analyzing data regarding energy markets and supply levels. In a recent interview with EIA head Adam Sieminski, Bloomberg Businessweek got some revealing opinions from a man with his fingers on the pulse of the markets. Most notable for those with an interest in oil prices, Sieminski declared that he sees a return to $50/barrell prices as imminent, with prices heading toward $60/barrell a real possibility. He points to the lack of investment over the last several years as a factor that could lead to constrained supply and therefore higher prices in the coming years.
A new report from the National Association of Realtors includes Denver on a list of the U.S. cities suffering from the biggest housing shortages. According to the report, more than 67,000 single family homes would have to be built in Denver just to return inventories to historically normal levels. Comparing that figure to the August housing inventory of 7,327 units reported by the Denver Metro Association of Realtors, it’s clear that such a large imbalance will not be resolved quickly.
As noted in the Denver Business Journal , the area’s strong job market is a major contributor to this phenomenon, luring new residents who put additional demand on the already tight supply of housing. Needless to say, the single family rental options that GCG provides in the Denver market are the best alternative to homeownership for families and are likely to experience continued rent growth in the years to come.