There’s a need for America to invest in infrastructure. Though there may be funding, there are other factors that affect how the funding is applied. We’ll look at investment funding and how oil prices factor into infrastructure investment.
Saudi Arabia Invests in U.S. Infrastructure
While the U.S. needs to invest in infrastructure, until recently, funding was limited. When President Trump began his trip in Saudi Arabia, the investment company, Blackstone, announced that Saudi Arabia’s sovereign wealth fund had committed $20 billion to a new investment fund aimed at infrastructure projects – mostly in America. Saudi Arabia’s $20 billion commitment to invest in America’s infrastructure is only half of the capital the company intends to raise; the total could reach over $100 billion.
Infrastructure Investment vs. Development
While the recent news of Blackstone’s plan to invest is welcome news for the U.S. infrastructure, which has suffered from a lack in funding, this doesn’t necessarily mean that money will immediately transfer to infrastructure development. Infrastructure is often regarded as a singular issue when in reality, the government addresses infrastructure in different sectors. Convincing committees and voters to agree on an infrastructure project is as much of a hindrance to development as a lack of investment.
In an article for Forbes, Founder and CEO of Aquamarine Investment Partners, Joel Moser, predicts that Blackstone will invest in existing privately-owned projects. This includes gas pipelines. Consequently, how would this potential investment affect oil prices?
Investing in Infrastructure May Increase Oil Prices
The question remains, what effect, if any, will increased oil prices have on infrastructure? President Trump has proposed a border tax to increase oil prices. An investment outlook from Andurand Capital Management predicts that “If the tax is adopted, WTI could move to a $10 [per barrel] premium to Brent providing a substantial economic advantage to U.S. producers.” Though the tax would be advantageous for U.S. producers, it would also increase domestic gas prices.
According to oilprice.com, higher oil prices are necessary for the president’s infrastructure plan. With low oil prices, companies prefer to drill in places with existing infrastructure. According to energy consultancy, Wood Mackenzie, “operators—no matter how nimble and resilient they have proven to be—are less likely to spend on exploration and infrastructure builds to appraise the economics of oil and gas extraction in new areas, when they could produce more cheaply in areas with more attractive—and proven—economics.” This suggests that the current infrastructure plan might be dependent on increased oil prices, regardless of recent investments.
Image courtesy of pixabay.com
