Whether Republican Donald Trump is re-elected as president of the United States or Democrat Joe Biden wins the election, neither candidate is expected to bring a complete win-win for the energy market. What’s good for the energy sector — including oil producers — isn’t necessarily good for oil prices.
“As promised in 2016, President Trump has reduced costly regulations in the energy sector, which allowed the United States to become energy independent for the first time in decades,” said Beth Sewell, president and chief executive officer at Quantum Gas & Power Services, Inc. “This abundance of supply has made retail energy prices much more stable over the past 3 years, which allows the average person to enjoy the benefit of reasonably-priced energy for their cars and homes.”
On the New York Mercantile Exchange, front-month prices for the U.S. benchmark West Texas Intermediate crude have declined by more than 38% year to date as of Tuesday, while global benchmark Brent crude has fallen by almost 40%, according to Dow Jones Market Data. On Tuesday, prices focused on expectations that the Organization of the Petroleum Exporting Countries and their allies, together known as OPEC+, may postpone output curbs that were due to take effect at the start of the new year. December WTI contract
The election, however, is
high on traders’ minds, though it’s not clear when the official winner of the presidency
will be announced.
“A Trump victory would
likely mean “continued issuance of permits for drilling on federal lands [and]
support for additional midstream infrastructure” said Stewart Glickman, energy equity
analyst at CFRA Research in New York. Trump is not likely to make any change to
policy with respect to Iran, which would keep “incremental Iranian barrels off
the world market, and “helps the current supply overhang from becoming worse.”
Read more: Here’s how the U.S. presidential election could shake up the oil market
Also see: Why a Biden presidency may lead to higher gasoline prices
Longer term, Trump’s support
for crude-oil supply in this country may contribute to “relatively higher
supply, keeping consumer prices lower,” said Glickman.
However, the U.S. is a net
exporter of crude and refined products, so while a lower oil price helps
consumers, it “isn’t necessarily good for the economy as a whole,” he said.
Meanwhile, if Biden becomes president that may lead to the “possible cessation of new drilling permits on federal land,” said Glickman. Many firms, however, have already built up a “war chest of such permits,” so any such new law “probably only has real teeth to it by maybe 2024.”
Read: Why gold will be the ultimate winner of the U.S. presidential election
Under Biden, Glickman also expects to see more “stringent application of laws on the books with respect to environmental review of midstream projects,” would could lead to more court challenges and delay project timelines. Glickman does not expect Biden to ban fracking because that would “decimate the unconventional oil and gas business in the U.S. and kill jobs in a lot of states.”
It’s not clear what Biden would do about the pandemic, but James Williams, energy economist at WTRG Economics, said he would likely impose more business shutdowns. That would lower fuel consumption and put downward pressure on prices, he said.
Glickman said Biden may also decide to “resuscitate” the Joint Comprehensive Plan of Action, also known as the Iran nuclear deal, which Trump withdrew from. If the U.S. rejoins the deal, that may bring back Iranian oil barrels and put more pressure on crude-oil prices in the short term, he said.
In the long term, Glickman
believes policies that discourage U.S. oil and natural-gas investment “set the
stage for a timing problems — a supply crunch occurring before renewables are
capable of taking enough market share.”
Quantum Gas & Power Services’ Sewell pointed out that neither of the 2020 candidates are differentiating between natural gas versus crude oil, but “instead are dumping them into one bucket called fossil fuels.”
Front-month natural-gas futures
settled at $3.059 per million British thermal units, down 5.7% on Tuesday. Prices were up nearly 40% year to date.
If Democrats win and ban fracking and close down drilling leases on federal lands, “this becomes a pure example of what I call Economies 101: supply and demand,” Sewell said. “Supply goes down while demand goes up, and there’s only one way prices will head — up!”