Economist: Trump’s plans should help oil industry

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President-Elect Donald Trump’s plans to lessen regulations on the oil and gas industry may be what the industry needs to make a comeback, Tulane Business Professor Peter Ricchiuti said Tuesday.
Ricchiuti was the guest speaker at the Atchafalaya Chapter of the American Petroleum Institute meeting at the Petroleum Club of Morgan City. Ricchiuti is a professor at Tulane University’s Freeman School of Business and leads the Burkenroad Reports student stock research program.
Ricchiuti expects “to see a rollback of safety and environmental regulations” under Trump’s administration.
Relaxing some regulations will allow the industry to “get things going again,” and put people back to work, Ricchiuti said. But prices won’t get back to where they were before prices plunged from $100 per barrel, he said.
When supply and demand reach balance, oil should rise into the $60 to $70 per barrel range, which would get offshore drilling back on track, Ricchiuti said.
Since October 2014, oil prices have been about cut in half. But the drop in gasoline prices was the equivalent of about a $200 billion tax cut for U.S. consumers, he said.
Trump has been pushing to bring back the coal industry, which is the direct competitor of natural gas, Ricchiuti said. Natural gas is much cleaner and cheaper to produce, though. So the effects of Trump’s fondness of coal remain to be seen, he said.
The election of Trump has a similar feel to when Ronald Reagan was elected in 1980 in that he’s perceived as a “non-politician, pro-business guy,” Ricchiuti said.
The stock markets responded positively to Trump’s election as they did for Reagan.
However, in the 18 months following Reagan’s inauguration, the markets declined by 20 percent, Ricchiuti said.
There’s “a lot of enthusiasm, a lot of optimism, but we don’t know really what’s going to happen yet,” Ricchiuti said of Trump’s presidency.
Democrats and Republicans both agree on wanting “to rebuild the nation’s infrastructure,” including roads, ports and research labs, Ricchiuti said.
Ricchiuti called Trump’s infrastructure stimulus plan a good idea, but leaders should be careful of creating “runaway inflation.”
Ricchiuti predicts Trump’s stimulus plan will create more inflation compared to the 2009 stimulus because more people are employed now.
He sees agreement across the political parties to lower corporate tax rate and close loopholes. The U.S. corporate tax rate is the highest in the world and will likely be lowered from 27 percent to 20 percent, which also will help the economy, Ricchiuti said.
The U.S. economy as a whole has been getting stronger the past six months. Housing stocks are low and rising. Weekly hours worked are high and rising. And long-term interest rates are higher than short-term rates, he said.
Those factors indicate a steady economic improvement.
But what’s most important to the strength of the economy is the middle class, which has shrunk considerably in the past 40 years, Ricchiuti said. The middle class has been reluctant to spend much money since the 2008 and 2009 economic crisis.
Since 1979, the U.S. economy has more than doubled in size. In 1979, the top 1 percent of the population earned 10 percent of the nation’s income, and now the top 1 percent earns 24 percent of the country’s income and controls half of the wealth, he said.
Historically, this much income inequality “has led to war, revolution or much higher taxes on the wealthy,” he said.
“I think you just had a revolution of Trump’s election,” Ricchiuti said.
U.S. leaders are doing a good job of decreasing the ratio of the deficit divided by gross domestic product, going from over 12 percent in 2009 to 2.4 percent this year, he said.
That means the U.S. “is adding to the debt only a little bit, but we’re not paying it off,” Ricchiuti said.
Stocks have risen to 3½ times of what they were in spring 2009, marking “the greatest stock market rally in history” and “one of the longest economic expansions in history,” Ricchiuti said.
One of the reasons the recovery has gone so well is that the economy hasn’t grown too quickly, only growing at a rate of 2.5 percent, he said.
U.S. markets have been going up for 88 straight months without a recession. Ricchiuti thinks the country is in the “late innings” of the economic recovery, but expects to go into “extra innings,” getting to over 100 months of continuous economic expansion, he said.