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8 Possible Moves Oil Traders Should Watch As Biden Administration Takes Charge

By Ellen R. Wald, Ph.D.CommoditiesJan 21, 2021 05:52AM ET
www.investing.com/analysis/8-possible-moves-oil-traders-should-watch-as-biden-administration-takes-charge-200556568
8 Possible Moves Oil Traders Should Watch As Biden Administration Takes Charge
By Ellen R. Wald, Ph.D.   |  Jan 21, 2021 05:52AM ET
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Joe Biden may only have assumed the office of President of the United States yesterday, but his administration is already making big changes to the country's energy policy.

In one of his first executive orders, signed after the inauguration, he revoked the permit for the Keystone XL Pipeline. TC Energy (NYSE:TRP) (TSX:TRP), the Canadian company building the pipeline, said it would consider its options but would suspend all work on the pipeline in the meantime. We may see legal maneuvers or diplomatic pressure by the Canadians, but for now as many as 8,000 people in the United States have lost their jobs.

Still, revoking the permit for the Keystone XL pipelines won’t have a serious, direct impact on oil prices.

Oil Weekly TTM
Oil Weekly TTM

It does say, however, that oil traders will need to watch the actions of the Biden administration as other policies could impact oil and gas markets.

Here are 8 potential policy moves traders may see from D.C. and the potential impact they would have on the market.

1. Cancelling new offshore drilling projects in federal waters

This would have little immediate impact on the supply-side as offshore drilling projects can take years to get up and running. The market probably wouldn’t react all that much if this occurs.

2. Complicating permitting for fracking or ending it entirely on federal lands

This move wouldn’t impact wells already drilled or permits already in place, so the supply of oil from the U.S. wouldn’t change immediately, but it would hurt future prospects.

This would have a faster impact on oil supply from the U.S. than ending offshore drilling permits. A move like this would almost certainly impact prices, especially WTI, in the short term.

3. Refuse permits or buyback leases to drill for oil in ANWR

This move is likely forthcoming, but it should not impact the market. The Arctic National Wildlife Refuge (ANWR) was only recently opened for drilling permits by the Trump administration, and the lease auction did not generate much interest.

Only two small companies purchased small leases. No big oil companies with the capital to actually bring projects in the arctic to fruition even bid on leases.

The rest of the leases were purchased by the state of Alaska, which can hold them for 10 years in hopes that when political and/or price conditions change, they can sell them to companies that might be interested in producing. It is very unlikely that we were going to see any more oil production coming from this part of Alaska anyway, so even if the Biden administration has the federal government buy the leases back from Alaska’s state development corporation, it won’t impact the market.

4. Limitations on energy infrastructure in the U.S.

Putting in place regulations that limit refinery expansions, pipeline projects or the expansion or upgrade of ports could limit crude oil supplies as well as hit the refined products market. If the government makes it more difficult for crude oil to be transported, refined or exported then traders should expect to see stocks of crude oil in the U.S. grow until producers are forced to curb production.

5. Reverse legislation to allow crude oil exports

At the very end of the Obama administration, the U.S. halted the ban on exporting crude oil. Since then, U.S. crude oil exports have grown from under 1 million bpd to a high of 3.4 million bpd in October 2019. Stopping U.S. crude oil exports would have a major impact on oil prices and would also cause the differential between WTI and Brent to increase significantly.

This move, however, is very unlikely.

6. Limits on LNG export facilities

U.S. LNG exports have grown significantly in recent years. In fact, during November 2020, the U.S. had record high exports of LNG.

The growth of liquefaction facilities as well as pipelines to transport natural gas to the facilities has helped spur this growth. If the Biden administration decides to curb the growth of either of these or put restrictions on the places where U.S. facilities can export natural gas, then U.S. LNG exports will be hurt.

If U.S. LNG exports decline while natural gas production remains stable then natural gas prices will fall. With low domestic prices and fewer opportunities for export, associated gas becomes less valuable. This contributes to the profitability of oil production and makes oil production less enticing.

7. Regulation on oil and gas production

The Biden administration is likely to increase regulations that govern methane release and flaring. They could also issue new regulations governing water use and seismic implications of fracking.

These kinds of regulations would have an immediate impact on current production and could cut down on output. They would likely have an immediate impact on prices.

8. Environmental regulations on users

The Biden administration is likely to pursue higher emissions standards for cars and other vehicles in the U.S.

The Obama administration promoted EVs with tax incentives, but the Biden administration could try to implement regulations that would push consumers towards EVs in a more aggressive way. These types of policies could change gasoline consumption in the U.S. such that oil prices are impacted.

8 Possible Moves Oil Traders Should Watch As Biden Administration Takes Charge
 

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8 Possible Moves Oil Traders Should Watch As Biden Administration Takes Charge

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Comments (11)
Stephen Be
Stephen Be Jan 22, 2021 1:44AM ET
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I think a DOE regulation saying you MUST DRILL 95% of your permits before being allowed to buy a new one would force efficiency into the fossil industry. Get your calculator out. What's TWENTY BILLION A YEAR SINCE NIXON in oil subsidies?  ($1,000,000,000,000) W hat has it given anyone except the oil producers except toxic waste? If Reagan had invested in Solar in the 80's we'd have energy producing roofing on all building erected in this century.  Give  that a good hard think Ma'am.
Bijoy Gajjar
Bijoy Gajjar Jan 21, 2021 10:40PM ET
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Dollar going down.. Commodity going up.. Oil is going Up.. Oil companies stocks are buy.
ian salon
ian salon Jan 21, 2021 1:15PM ET
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my question is this: Biden reduces fracking and oil production.. won't oil prices go up? we are not getting EV cars for at least a decade. I live in a major city where am I charging my car? oil prices go up with biden?
Stephen Be
Stephen Be Jan 21, 2021 1:15PM ET
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The answer is to BAN OFFSHORE SALES of US oil. Mandate that 100% of US production be reserved for Americans.  When the Saudis dropped the thin Towers, we should have invaded them and taken their oil instead of the innocent Iraqis. Of course leaving the Ex CIA operative Hussein in power cost Bush I a second term, but it ensured militarism on foreign soil for another three decades. GOOD JOB!
sam Ala
sam Ala Jan 21, 2021 8:19AM ET
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Great article.. Thx
howard berg
howard berg Jan 21, 2021 8:15AM ET
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Kind of makes one wonder about some of Biden's campaign fund sources.  Who does this benefit?
Stephen Be
Stephen Be Jan 21, 2021 8:15AM ET
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Every American who lives in the 21st Century. You can't move forward by living in the past. Ever bother to think that the FINITE RESOURCE of petroleum might be best reserved for medicine and specialized chemicals? Isn't it just burning money to put it in a tank?
Jens Ant
Jens Ant Jan 21, 2021 7:35AM ET
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Wow. Good luck Americans.
Stephen Be
Stephen Be Jan 21, 2021 7:35AM ET
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We survived the Republican Coup. We'll be fine.  Let's give SOLAR energy the ONE TRILLION IN SUBSIDIES we are still wasting on fossil fuels. Let's see what 21st Century minds can develop with that. If Reagan had invested in Solar development in the 90's we'd have been installing energy producing roofs on all buildings for the last 25 years. TRUE ENERGY INDEPENDENCE will not come from binding ourselves to our Middle Eastern enemies. You know, the 9/11 crew from Saudi Arabia. Bush's best buddies.
Arsene Lar
Arsene Lar Jan 21, 2021 7:23AM ET
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Having worked many years in aid project, one understands the great value of pipelines. They are a very valuable piece of infrastructure and can carry just about any liquid which is not appreciated by most politicians. Having oil companies pay for a pipeline that in 20 years could be used to transport unlimited quantities of fresh water from Eastern Canada to California. I'm convinced Biden and Harris have full competence in infrastructure matters.
Data First
DataFirst Jan 21, 2021 7:23AM ET
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The alternative for pipeline are truck/rail/ship. All are worst than pipeline in term of carbon emission and cost. I'm a tree hugger, but some environmental groups are idealistic, or pretty lunatic.
Luuk Bernard
Luuk Bernard Jan 21, 2021 7:14AM ET
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Trump was so much better for America .You will see in 4 yrs.Obama was a disaster just like Biden
abdul aziz
abdul aziz Jan 21, 2021 7:13AM ET
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What are the impacts to XOM?
Normina Guiandal
Normina Guiandal Jan 21, 2021 7:11AM ET
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Congratulations
Jurgen Daub
Jurgen Daub Jan 21, 2021 6:41AM ET
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finaly a sraight path forward
 
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