Would Biden Be Bearish for Oil Prices?

The US presidential election on Nov. 4 contains layers of risks for oil markets. With oil prices dropping below $40 per barrel this week, the election comes at a fragile time for crude (related). No matter whether incumbent Republican Donald Trump wins another four-year term or whether his Democratic challenger Joe Biden unseats him, momentum will still be primarily driven by demand concerns, specifically the trajectory of the coronavirus and related lockdown and travel restrictions that are resurfacing in the pandemic's second wave. Investors know what they will get from Trump -- a staunch supporter of the domestic oil industry, a close ally of Opec leader Saudi Arabia and a sanction-happy opponent of Iran and Venezuela (PIW Oct.2'20). A Biden victory would carry more questions for oil markets, both in the short- and long-term, but ultimately could be bearish for an industry already threatened by the energy transition and capital flight (PIW Oct.16'20). Many experts forecast a contested election that may not be resolved for days, if not weeks, after Nov. 3. That uncertainty could roil markets for a spell, although some is already baked into prices. With economic concerns mounting from the second wave of Covid-19, investors are fixated on prospects for more short-term stimulus in the US, a legislative effort that has been derailed by the election cycle and partisan politics. A Biden victory, if accompanied by a "blue wave" Democratic takeover of the Senate and additional gains in the House of Representatives, could hasten the emergence of a new stimulus package and provide a jolt to markets in the short-term. While another round of fiscal stimulus may be high on investors' minds in the short-term, Biden's approach toward harsh sanctions on Iran and Venezuela could quickly move up the list for oil traders. Trump dropped the hammer on the two Opec members, removing some 2 million barrels per day from global oil markets, and any easing of policy -- or enforcement -- under Biden would put additional crude on the market at a time when demand is soft and supply concerns are mounting (PIW Oct.23'20). Combined with his climate agenda, which could further ding investor sentiment toward oil, some believe Biden, who has promised a "transition away from the oil industry," could knock $5-$10/bbl off the oil price. A Trump win alternatively might halt the bearish winds somewhat, particularly given his influence with Saudi-led Opec-plus, which is contemplating adding 2 million b/d to the global market on Jan. 1 (PIW Apr.10'20). Biden insists his transition plans do not equate to a "ban" on fossil fuels but rather an end to fossil fuel subsidies. In foreign policy, a Biden presidency could not simply turn back the clock. Experts caution against expectations that Biden might swiftly reverse Trump-era policies, noting that attitudes in key capitals -- Tehran, Beijing and Moscow -- have evolved, leaving less scope to rebuild the post-World War II order. Expectations of a quick Iran nuclear deal are likely misplaced, they argue, given the challenging diplomatic choreography and likely resistance on both sides. Investors are concerned that a Democratic sweep could be a defining moment for the oil and gas industry. A Biden victory would help dictate the pace of the energy transition in the US and in the rest of the world. Experts believe Biden would combine short-term energy pragmatism with a new long-term US climate direction. But Washington insiders also stress Biden's long centrist record, arguing he was unlikely to favor radical near-term measures against the oil and gas sector, such as abruptly banning new federal leasing and permitting. Still, the Democrats' stance on energy has shifted considerably since the Obama era, and there would be greater pressure on Biden to tackle issues like methane emissions, new pipelines and access to public acreage, which would weigh on US supply -- and ultimately provide support to global oil prices (PIW Oct.9'20). Some argue Biden would disappoint those seeking faster climate action, despite his pledges on a 2050 net-zero emissions goal and rejoining the Paris climate accord. While a new administration may remain cautious on near-term energy policy, it is likely to bend to pressures for greater long-run climate ambition. The scale and scope of change will largely depend on the constitution of Congress and whether Democrats can advance meaningful climate legislation.