May 26, 2020 - Energy & Environment

The oil stakes of Trump vs. Biden

Reproduced from Rapidan Energy Group; Chart: Axios Visuals
Reproduced from Rapidan Energy Group; Chart: Axios Visuals

U.S. oil production is in a steep decline, but one question is how much November's elections will affect how much it does — or doesn't — bounce back.

Why it matters: The powerful price and demand headwinds from the coronavirus pandemic are creating a financial crisis in the oil patch.

  • The fallout will be continuing come November, which will bring a choice between candidates with hugely different energy and climate policy plans.
  • Joe Biden is vowing new steps to stem heat-trapping emissions and accelerate the transition to cleaner fuels and power sources, while President Trump opposes climate regulations and curbs on fossil fuel development.

The big picture: Under the base case of an analysis by Rapidan Energy Group, the "near-term macroeconomic risk remains skewed firmly toward longer, deeper economic weakness," but recovery awaits.

  • U.S. production is a million barrels per day lower by 2023 under Biden than Trump.

Yes, but: Under a weaker price and demand recovery forecast, the effect of Trump's policies compared to Biden's is much smaller.

  • "U.S. shale’s outlook under a weak macro environment differs negligibly under a Trump or Biden presidency," they note, citing the financial strain on the sector and problems accessing capital.
  • "Trump policies would do little to resurrect the sector while Biden policies would do little additional harm."

One level deeper: Rapidan analyzed market scenarios through 2023, and then grafted the policy overlay onto that outlook.

  • The base-case scenario sees Brent crude prices rebounding to the low-$50s in 2023 and a 10 million barrel per day recovery in demand.
  • But the weaker-recovery scenario sees prices only in the low-$40s in 2023 and a demand revival that's about 25% smaller than in the base case.

The intrigue: Under the base case, various Biden policies that act as a check on the amount of shale production levels include requiring stronger emissions controls, thwarting fossil fuel infrastructure, and allowing more Iranian barrels onto the market.

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