The U.S. elections are less than a month away, and the oil market cannot seem to make up its mind whether it prefers a Biden or Trump presidency.
Democratic candidate Joe Biden is ostensibly bearish for the oil markets since he has not only pledged to steer the U.S. to a net-zero carbon emissions status by 2050 but is also hell-bent on stopping key oil and gas projects on federal lands and waters including the controversial Keystone XL. President Trump, on the other hand, has taken credit for the spectacular surge in U.S. shale oil production, rolled back a raft of regulations on the fossil fuel sector and sworn to continue doing so if re-elected.
Biden appears to have gained a decisive upper hand in the race with a 57-41% voter approval margin after the first presidential debate. Yet, oil markets have remained indifferent, with prices remaining range-bound in the mid-30s to low 40s range.
Investors are frequently advised to leave politics at the door when making investment choices. That maxim certainly rings true for presidential elections since it's a well-established fact that presidential policies tend to matter a lot less for the stock market than Federal Reserve policies or even the general health of the economy.
Still, energy is one of the key sectors whose fate might look radically different under a Democratic administration compared to a Republican one.
There’s no denying that the dynamics in the oil and gas sector have in the past determined the outcomes of U.S. presidential elections.
Going by most poll results, a Biden landslide victory is looking more likely than a Trump win.
But the oil market couldn’t care less. Here’s why.
Biden win = OPEC win Over the past half a decade, the U.S. rose to become the largest oil and gas producer in the world thanks to a carte blanche handed to the industry by the Trump administration.
A Biden win is likely to radically change the picture, with Biden being extremely pro-renewables, declaring that dramatic clean energy investments will be necessary if the U.S. is to match the EU by becoming a net-zero carbon emission country by 2050.
Indeed, Biden has proposed a staggering $1.7 trillion in federal spending over the next decade to achieve this goal, with the private sector expected to chip in with the balance. Biden also says the taxpayer costs can be recovered by repealing the generous tax bonanza that Trump granted U.S. fossil fuels.
The Democratic presidential candidate just doubled down on that pledge during the first presidential debate saying zero coal plants will be built under his watch.
Further, Biden has endorsed the Green New Deal.
Last year, House representative Alexandria Ocasio-Cortez of New York and Senator Edward J. Markey of Massachusetts, both Democrats, proposed the Green New Deal, a nonbinding congressional resolution that lays out a grand plan for tackling climate change by meeting 100% of the power demand in the United States through clean, renewable, and zero-emission energy sources.
In short, a Biden presidency is likely to be a huge win for the renewables and clean energy sectors and bad news for U.S. oil and gas.
However, OPEC might not necessarily view it that way.
Indeed, OPEC is quite likely praying for a Biden win because this outcome would hand the baton back to the cartel when it comes to controlling the international oil market. According to the Energy Information Administration (EIA), U.S. crude output hit a record high of 13.1 million barrels per day in March but plunged to just 10.7 mbpd as of the week ending on September 25 largely due to self-inflicted cuts by shale producers.
If the much-talked-about ban on fracking were to happen under a democratic president, it would almost certainly lead to a bigger fall, and allow OPEC to, once again, rule the roost.
For years, if not decades, OPEC members have been jousting for market share, which is, of course, the reason why the latest Saudi-Russia oil price war happened in the first place.
Indeed, Saudi Arabia’s state oil giant Aramco has just declared that it does not believe in peak oil demand and plans to double down on boosting oil production in the long term to beat its competitors despite many pledging significant investments in low-carbon energy.
Aramco has said: “We expect oil demand growth to continue in the long term, driven by rising populations and economic growth. Fuels and petrochemicals will support demand growth ... speculation about an imminent peak in oil demand is simply not consistent with the realities of oil consumption.”
The natural gas market is not much better off, with producers treading on the same path as their oil brethren.
Qatar, the biggest LNG exporter, recently announced that it will go ahead with its massive liquefied natural gas (LNG) capacity expansion by betting that it can beat other LNG producers through low production costs and co-production of condensates and liquefied petroleum gas (LPG).
In other words, a Biden win would simply shift the oil power base back to the east, essentially doing little to rebalance global markets in the long-term.
The global oil and gas industry can clearly read between the lines.
By Alex Kimani for Oilprice.com
