While the Biden administration’s landmark Infrastructure Bill has been framed as anti-fossil fuels by the media as well as by politicians such as coal country’s Joe Manchin, oil has ironically surged on the back of the bill’s long-awaited passing. “This U.S. infrastructure bill screams bullish for oil,” Louise Dickson, senior oil markets analyst at Rystad wrote in a recent note.
The passage of the $1 trillion U.S. infrastructure spending package will likely spur a country-wide economic recovery, in turn increasing demand for oil. What’s more, Biden’s infrastructure package has always had a huge boost for oil demand embedded in provisions such as funding for roadbuilding, which requires a whole lot of petroleum-based asphalt. Even before the Bill was torn apart and simplified to mollify Republicans, the Infrastructure bill was far more oil- and gas-friendly than most headlines would have you believe.
In fact, many environmentalist groups have long been vocal skeptics of the Biden administration’s Infrastructure Bill for kowtowing to the fossil fuel industry and allowing the most progressive provisions for mitigating global warming to be gutted in order to make the bill appealing to a bi-partisan Congress. Provisions such as funding for carbon offsetting, widely viewed as a classic greenwashing tactic, have been described by skeptics as “on the oil industry’s wish list” and have been viewed as “a gift to oil companies” by climate groups.
Biden is walking a very fine line between pushing forward a climate-friendly agenda and keeping the oil and gas sector from crumbling and taking the U.S. economy with it. “Even as Biden Pushes Clean Energy, He Seeks More Oil Production” A New York Times article proclaimed last week. Indeed, as oil and gasoline prices have risen around the world as global supply chains have struggled to keep up with energy demand, growing anxiety about inflation has reflected poorly on the Biden administration.
Retail gasoline prices have risen about 50% to reach higher than pre-pandemic levels, leaving Biden with few options to regulate inflation. Cutting back on oil exports risks angering important allies, OPEC+ has refused to budge on production limits despite the White House’s imploring, and the President is extremely hesitant to tap into emergency reserves.
All of this has led to a major boost for oil benchmarks and futures. This boost is coming on the back of a significant loss last week on the heels of an OPEC+ meeting which resulted in the powerful cartel declining to boost oil production. That clear signal that OPEC+ was not going to change its approach to oil markets fueled some fears that U.S. producers would finally open the taps - fears that have so far proven to be unfounded.
While oil has received a short-term boost from the Biden administration, the future of fossil fuels is still uncertain. All of this is taking place against the backdrop of the COP26 climate conference, which has brought together the most powerful world leaders to get serious about climate change mitigation and adaptation strategies. This summer the United Nations sounded the alarm bells, decrying a “code red for humanity” as the Intergovernmental Panel on Climate Change released its landmark 6th Assessment Report. The document stated in no uncertain terms that human activity has already irreversibly altered the climate, and the window to limit further damage is rapidly closing.
While it’s completely unrealistic for the world to wean itself off of fossil fuels overnight, the desire - particularly within developed nations - is clearly there to reduce dependence. Indeed, the global green energy transition has begun, and throwing serious money at enabling infrastructure is a key part of that imperative - even if it gives oil a temporary boost.
By Haley Zaremba for Oilprice.com
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