1 big thing: The oil stakes of Trump vs. Biden
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 COVID-19 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.
Driving the news: An interesting Rapidan Energy Group analysis games out the medium-term future of U.S. production under Trump vs. Biden.
What they found: Under their base case, 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.