Exclusive: Total chief believes shale and US tariffs may impact oil prices more than weaker dollar

Oil prices have rebounded after a three year slump while the dollar is weakening

The euro is taking a hammering against the dollar and others may follow. Jason Lee/ Reuters

Protectionist measures adopted by the Trump administration could have wider implications for the energy industry, particularly shale than a weakening dollar and its impact on the price of oil, the chief executive of French oil giant Total said.

“I think the question is more what will be the economic policy of the US, what could be the influence on the dollar,” Patrick Pouyanne said in an interview with The National. “The oil price I think should be influenced in the coming months by what will be the shale oil production in the US…and maybe also it will be influenced by the steel tariff, which is not good news for shale production because it will increase all the costs,” he added.

Traditionally there is an inverse relationship between oil prices and the greenback which is the reference currency in the oil industry. The dollar has weakened over the past three years shedding more than 10 percent of its value against other major currencies in 2017. This has also coincided with a slow pickup in the price of Brent, which has since November surged above $60 per barrel and touched a three-year high of just under $70 a barrel in January. Oil prices have recovered from a three year oil slump rebounding to above $60 a barrels after Opec and non-Opec producers led by Russia agreed to extend oil output cuts until the end of 2018.

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“There are many debates about the link between the oil price and dollar price. Generally, what you can say is that the commodity price has an influence on the dollar,” he added.

The Opec-led alliance's efforts to rebalance the oil market and bolster prices has also led to the revival of the US shale industry, with higher rig count numbers this year. For the first time in nearly 50 years, US oil production, backed by greater efficiencies in the shale basins reached 10.4 million barrels per day as of February, overtaking Saudi Arabia and poised to displace Russia, the largest sovereign producer of crude. Following these developments, earlier this month US President Donald Trump said he will impose a duty of 25 per cent on imported steel and 10 per cent on aluminium saying the measures would help safeguard American jobs in both industries. European countries have warned of retaliatory measures.

“One of the big lessons since 2014 is that you have a big volatility in this market, we are in the commodity business,” Mr Pouyanne said when asked what oil price estimate Total is operating on. “The lesson is that we don’t control the price. We’re price takers, so we have to have a portfolio of assets, which are resilient to any type of price.”

The company, which he said operated on a $50 per barrel assumption is looking at a business strategy for a price environment of $80 to $90 a barrel he said. Mr Pouyanne said last year his teams were working on a three-point strategy to embrace an oil price environment of $40, $50 and $60 per barrel.

Total, which has eschewed investment in US tight oil preferring to invest in politically sensitive but lower-cost areas in the Middle East such as Libya and Iran, signed two concession agreements for offshore Abu Dhabi on Sunday.
"[This will] lower the breakeven in our portfolio and this is what we [can] control ...and I'm [Total] very profitable," he added. 
The company's strategy comes in stark contrast to Big Oil firms, which have exited concessions in the Middle East to pursue contracts in the US shale regions.
The French producer has been one of the more profitable oil and gas companies since the price slump, helped in part by aggressive cost-cutting measures undertaken by Mr Pouyanne as well as investments in areas with historically lower breakeven prices, helping the company tide over the vagaries of the oil markets.