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Alex Kimani

Alex Kimani

Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com. 

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Why The Elections Aren’t Moving Oil Prices

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 US 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. Related: Oil Spikes After OPEC Claims: ‘’The Worst Is Over For The Oil Market’’


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.

Related: Iran Is Building A Massive Energy Network To Boost Its Geopolitical Influence

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

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  • Johnhenscheid on October 08 2020 said:
    Everyone knows that the polls are rigged by the screwed up media in this country. That’s why the oil markets don’t change much. Everyone knows President Trump is going to be President after the election
  • Pekka Lehtikoski on October 08 2020 said:
    The article's analysis is good, and I believe a possible one. Take from a little different angle, just to consider:

    Biden's freedom of movement may be limited over the first four years, despite his endorsements and plans. America is likely to be in sort of recession for the next few years, and then slowly coming up. Slowing down recovery by rising taxes and energy prices will not be popular. Giving up energy independence wouldn't either by bee seen in a positive light.

    Four years is short in building new energy infrastructure. Just getting investment, EPA approval, and settling the local lawsuits for one power plant easily takes that. To go all "green", thousands of new power plants and a new power grid needs to be built. Then we need to develop efficient grid-scale energy storage technology, we do not have technology that would fit this scale. It might take a bit more time than either party can hold on to power.

    A gradual transition to clean energy is already going on in rich 1/3 of the world, and the US may be there in less than 50 years. Biden is much more likely than Trump to increase subsidies to wind and solar and extend the phase-off time, and put restrictions on oil and gas. Which would be a short-term win for renewables, but limit the renewable sector growth and energy storage development in long run.

    I understand that Biden victory would be a win for OPEC and Russia, but possibly a much smaller victory than what they hope for. Biden might not sacrifice the US of today to see things done in his lifetime.
  • Mamdouh Salameh on October 09 2020 said:
    What determines oil prices is first and foremost the fundamentals of the global oil market. Neither Trump nor Biden have any impact on oil prices.

    While a Biden win is likely to favour the renewables and clean energy sectors, it will neither change the fact that oil and gas will continue their ascendency throughout the 21st century and beyond nor will it suppress Americans’ love of their cars and their thirst for oil.

    And while President Trump has given himself credit for the rise in US oil production (overwhelmingly shale oil) by rolling back a raft of regulations on the fossil fuel sector, he inflicted the greatest damage on the US shale oil industry by encouraging shale drillers to produce recklessly even at loss to achieve his geopolitical slogans of “US energy dominance”, “energy independence” and “the world’s largest crude producer” at the expense of profitability and common sense. They ended up with billions of dollars in debts they can’t repay hence the almost collapse of the US shale oil industry and the growing number of producers filing for bankruptcy. In other words, President Trump encouraged geopolitics over economics but economics always prevails at the end.

    And although the polls suggest a Biden win, I have the feeling that Trump may prevail because his supporters are fanatical about him.

    Still, the global oil market couldn’t care less about either. Fundamentals will be the decisive factor ultimately.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Carlos Blanco on October 09 2020 said:
    OPEC and all players in the oil industry will want Biden to win. Trump's rhetoric towards China will not help to stabilize the world economy which eventually has a big impact on oil demand and price. The US is still the most powerful and richest country in the world so the whole world including business needs a stable US.

    Biden and Democrats might support the net-zero emission effort but everyone knows that this will not happen overnight. The oil will still be the main energy source for a while so there will still be demand for it.

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