How Will Biden's Energy Policies Affect Oil Prices?

How Will Biden's Energy Policies Affect Oil Prices?
Analysts give their take on the price effects of Biden's new energy policies.

U.S. President Joe Biden’s new energy policies will have a moderate impact on Brent prices overall.

That’s what Matthew Bey - a senior global analyst with Stratfor, a RANE company - told Rigzone, adding that short term price dynamics are largely being driven by Saudi Arabia, OPEC+ policy and the pace of the economic recovery from Covid-19.

“Over the next two years the economic recovery from Covid-19 and the pace of it globally, coupled with the pace of global production growth will play a driving role in price formation,” Bey said.

“President Biden's policies could slow down the pace of resilience that United States onshore producers have when reacting to higher prices, which would slow down a surge in supply that could temper price increases,” he added.

“Nevertheless, President Biden's overall economic policy relating to stimulus, Covid-19 vaccine roll outs and Covid-19 related restrictions will have a far more influential impact on the near and medium term Brent and WTI prices,” Bey went on to state.

When asked how Biden’s new energy policies would affect oil prices, Jamie Webster, a senior director at Boston Consulting Group’s Center for Energy Impact, noted that this was “difficult to assess”.

“The Biden administration is about one percent into his four year term, so it is difficult to assess given additional policies will be put in place in the coming days, weeks and months, some of which will work to reduce demand for petroleum products,” Webster said.

“To date the moves are only executive orders, a vehicle for change that is fast but also not durable, as seen by the 100+ executive orders to reverse Trump administration policies. Legislation will be a more durable method to change policies over the long term but will be difficult given the fractious nature of congressional politics,” he added.

“If changes do come it is unlikely to impact short term prices, other than any short term news cycle trading. Instead any impacts will be longer lead times. At present, the policies are largely focused on supply and transport restriction, actions that would increase the price, all other things being equal. But as the administration staffs its government, demand will also be impacted, potentially mitigating or even canceling out any supply impact,” Webster went on to say.

WTI, Lease Pause and Permit Ban

Looking at the impact of Biden’s new energy policies on the WTI price sector specifically, Stephen Brennock, an oil analyst at PVM Associates, projected that tightening supply dynamics could be reflected in WTI from 2022.

“I think it's fair to say that Joe Biden's climate agenda will hinder future growth in domestic U.S. oil and gas production,” Brennock told Rigzone.

“That said, I don't expect the impact to be felt in the near term. Drillers rushed to secure federal drilling permits in the run-up to November’s election, therefore, the bullish impact of restricting America's oil production on U.S. crude prices will be missing from the oil markets in the short term,” he added.

“My best guess is that the WTI complex will only start reflecting tightening supply dynamics from next year onwards,” Brennock went on to say.

Commenting on the price effect of Biden’s pause of new oil and natural gas leases on public lands and offshore waters, Jarand Rystad, the chief executive officer of Rystad Energy, outlined that the pause will not influence short term oil prices or even economics of oil exploration and production companies in the United States.

Rystad noted, however, that it will be “very dramatic” for suppliers such as seismic companies, rigs and other exploration-driven oil service segments.

James Davis, the director of short-term and head of supply at FGE, said he thought oil markets had underestimated the potential impact of Gulf of Mexico supply if an out and out permit ban is put in place for federal leases.

“This is due to the fact that many of the upcoming projects offshore the Gulf of Mexico have yet to secure development well permits,” Davis told Rigzone.

“This puts around one million barrels per day of future capacity, for 2025, at risk. If this risk turns into a harsh reality, we would expect to see upwards support for long dated oil contracts, which would ultimately drag up prompt prices too,” he added.

Since his inauguration on January 20, Biden has rejoined the Paris agreement, revoked the presidential permit for the Keystone XL pipeline, placed a temporary moratorium on all activities of the federal government relating to the implementation of the Coastal Plain Oil and Gas Leasing Program in the Arctic National Wildlife Refuge, and paused new oil and natural gas leases on public lands and offshore waters.

At the time of writing, the price of Brent crude and WTI stood at $63.22 per barrel and $60.55 per barrel respectively. Brent spot prices are expected to average $53.20 per barrel in 2021 and $55.19 per barrel in 2022, and WTI spot prices are expected to average $50.21 per barrel in 2021 and $51.56 per barrel in 2022, according to the U.S. Energy Information Administration’s latest short term energy outlook, which was released on February 9.

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Gary Player  |  February 15, 2021
As a 78 year old geologist I have seen every price fluctuation. However, this will be the first time that shortages cannot be replaced by new exploration. Wish us all luck.