Mumbai: Compared with a second term of the Trump administration, a Biden presidency could be positive for U.S. oil and gas drillers because tougher regulations on hydraulic fracturing would likely reduce production, raising crude prices to levels of WTI $45-$55 in coming months after elections, Motilal Oswal Financial Services said on Monday.
The increase in crude prices is likely on account of the Biden pledging to end new drilling on public lands and move towards a carbon-free future. this would mean fresh production would be curbed resulting in falling oil inventories, pushing up the prices.
According to the brokerage, the greatest domestic impact could come from a promise by Democratic Biden to stop issuing drilling permits for federal land and waters, which would shrink U.S. oil production by up to 2 Mb/d by 2025. Easing permitting for pipelines and other energy infrastructure has been central to Trump's deregulatory agenda, although with limited success on the highest profile projects.
Biden might deny Dakota Access a new permit, which could threaten the return of up to 300,000 b/d of shut-in Bakken supply in the near term and cap takeaway capacity at 1.15 Mb/d, as operators reshuffle logistics and mobilise additional rail capacity, the brokerage report said.
Federal permitting in the largest US oilfield in Permian Basin, located in Texas and New Mexico, is up 80% in about the last three months.
Biden win will likely be an upward catalyst for oil prices because it will increase costs for shale patch and will likely result in a weaker U.S. dollar, the report added.
However, headwinds remains to this optimistic view that if sanctions are pulled off from Venezuela or Iran, they might re-emerge as a significant oil exporter and this might put pressure on prices and can force adjustment in production for the three big oil producers and likely a reduction in through-cycle prices which can push additional pressure on prices and bring back glut fears and push prices to levels of $35.
The change in presidential power in US will have enormous implications for oil and gas markets, regulation and potential fiscal stimulus. The US presidential election presents a stark contrast for the next four years of US oil policy that could shape supply/demand dynamics domestically and abroad, with implications for shale, sanctions, and trade and OPEC relations, Motilal Oswal said.