M6 BARRON’S October 19, 2020
Oil Market Sizes Up
U.S. Election Scenarios
T
he oil market has been preoccu-
pied for months with concerns
surrounding weaker demand
driven by Covid-19 economic
restrictions, but the U.S. presidential elec-
tion now has taken center stage as traders
weigh election-win scenarios and the po-
tential outcomes for energy prices.
Demand increased from lows in the
second quarter, but the “world is still con-
suming less oil than at the beginning of
2019,” says Rob Thummel, managing di-
rector at Kansas-based investment com-
pany Tortoise. “Most believe that global oil
consumption won’t return to 2019 levels
until 2022,” and traders are “closely
watching the resurgence in Covid-19 cases
to determine if global demand will retreat.”
However, uncertainty over who will win
the Nov. 3 election is of growing concern,
given the candidates’ contrasting energy-
policy views. “A potential new administra-
tion could ultimately impact oil prices
through changes in drilling regulations,
policy support for electric vehicles, or a
different approach to foreign policy,” says
Stacey Morris, director of research at index
provider Alerian.
A win by President Donald Trump
would “lead to more of the same and be
more friendly” to oil and natural gas, says
Morris. Trump’s Republican administration
would emphasize “loosening regulations for
the industry and expediting the permitting
process for new infrastructure.”
Trump has been known to challenge
science and the idea of global warming. He
has taken steps to promote U.S. energy
independence and ease regulatory hurdles
in the market. An uncontested Trump vic-
tory would mean “business as usual for
the oil markets,” says Ryan Fitzmaurice,
senior commodity strategist at Rabobank.
Still, the oil industry would face signifi-
cant challenges under another Trump
term, “given the sharp decline in global
travel as a result of the pandemic.”
The election of Democrat Joe Biden,
meanwhile, may result in more energy-
market restrictions. “Headwinds to U.S. oil
and gas production would rise further”
under a Biden win, Goldman Sachs ana-
lysts wrote in an Oct. 11 research note.
Statements by Biden suggest that his
administration may introduce regulations
that would increase shale production costs
and reduce shale’s recoverable resources
by limiting federal land drilling and pipe-
line approvals, the Goldman Sachs ana-
lysts say. A Democratic sweep of the House
and Senate could allow for increased fed-
eral oversight of shale activity, they add.
An undisputed Biden win might see oil
initially fall as the market waits for him to
act, possibly banning hydraulic fracturing
on federal lands, and removing sanctions
on Iran, says Tortoise’s Thummel. Iran is
home to one of the world’s largest proven
oil reserves. This month, the Trump ad-
ministration announced fresh sanctions on
major Iranian banks in another move to
restrict the country’s nuclear pursuits.
If Biden, as president, re-enters the Iran
nuclear deal, Fitzmaurice says that would
potentially add up to one million barrels a
day to an “already bloated market facing a
very fragile demand recovery.” Still, regu-
lations that appear negative for the indus-
try could be offset by some “positive im-
pacts to oil and natural-gas prices,” as
regulations would negatively impact
domestic energy output, says Morris.
An unclear outcome to the election
could have a “negative impact on oil prices
in the near term,” because the market does
not like uncertainty, she says.
On Oct. 15, U.S. benchmark West Texas
Intermediate crude futures settled at
$40.96 a barrel. If prices drop into the low
$30s as a result of a contested election or
Biden victory, that presents a “good buying
opportunity,” says Thummel. Signs of
a strong economic recovery could send
prices higher, and if they rose into the
$60s, “then profits should be taken,”
as there is currently ample oil supply.B
By Myra P. Saefong
COMMODITIES
SPONSORED BY©2020 Dow Jones & Company. All Rights Reserved. 2E222Download the full report at
barrons.com/covidreport
COPING
WITH COVID
ASPECIAL REPORTFOR ADVISORS