Regardless of who is in the White House, oil markets want stability
What should the oil markets expect from a Joe Biden presidency? The question is simultaneously more complex, and far simpler, than it might appear on the surface.
According to the campaign rhetoric, most of it admittedly from the losing camp, Biden was the anti-oil candidate. He would ban fracking in the US, force all power generation to use wind or solar alternatives, and re-impose business-hostile environmental planning regulations.
Far more serious, he would immediately lift sanctions imposed by the Trump administration on oil exports from Iran and Venezuela, flooding the global market at a time when new lockdown restrictions were impacting demand more seriously than at any time since March.
Middle East producers might take some comfort from the first scenario, which implies a further retreat by American crude producers from the market “dominance” so proudly claimed over the last decade of shale-fueled expansion.
But they could not be happy at the thought of the second scenario. According to data from energy consultants Kpler and Gulf Intelligence, Iran and Venezuela exported a mere 609,000 barrels of crude in October, compared with 4 million before sanctions began to bite. Putting that much oil back on the market in a short space of time could cause another price collapse.
Venezuelan crude is the less worrying prospect. The US under Biden has no more love for the regime of Nicolas Maduro than did his predecessor, and sanctions are likely to remain strictly in place on Caracas, though there may be a relaxation in humanitarian aid.
Iran is more complicated. Biden has said he wants to get back to the accord on nuclear development negotiated while he was vice president, which could allow for a resumption of oil exports if sanctions are relaxed.
Regardless of who is in the White House, global oil policy is probably best left to the expert policymakers at OPEC+, the chief executives of the big independent oil companies, and to inexorable market forces.
Nobody is expecting this to happen overnight, and Biden would have to get the backing of regional oil-producing countries to make any such deal work. Nonetheless, there is the medium-term prospect of a large amount of Iranian crude coming back on world markets some time during a Biden presidency.
On US energy, the Biden position is far more nuanced than the “ban fracking” simplicity. He actually opposed calls from the more radical wing of the Democrats to issue a blanket ban on shale oil production, but would make it more difficult to explore and develop on federal lands.
He is also likely to ban the archaic practice of “flaring” from oil and gas wells, which most energy experts agree is wasteful in both environmental and economic terms. Saudi Arabia, for example, banned flaring many years ago.
Biden has said he would re-enter the Paris Agreement on climate change, and would commit the US to a goal of net zero emissions of greenhouse gasses by 2050.
He has pledged a $2 trillion injection into the renewable sector in the US. The possibility of a big push into solar and wind generation is more remote if the new president has not got control of the Senate, whose approval would be needed to push the budget through Congress. Big oil in the US can breathe again, for a while at least.
In a significant straw in the wind, the main US oil lobby, the American Petroleum Institute, lost no time in congratulating the new presidential team immediately after the Pennsylvania result, and pledging its cooperation on “bi-partisan solutions.”
When the election was called, some traders went on social media suggesting that future trends on oil prices were actually more bullish under a Biden presidency, mainly because the volatility of the Trump years would be no more.
It is true that conducting energy policy via Twitter was probably not conducive to stability. Regardless of who is in the White House, global oil policy is probably best left to the expert policymakers at OPEC+, the chief executives of the big independent oil companies, and to inexorable market forces.
- Frank Kane is an award-winning business journalist based in Dubai. Twitter: @frankkanedubai