How Did the US Election Impact Oil and Gas Sector?

Published November 18th, 2020 - 02:30 GMT
How Did the US Election Impact Oil and Gas Sector?
• The price of oil is expected to be around $45 a barrel in 2021 and $55 in 2022.
Highlights
What does the winner in the US presidential election mean for the future of oil and gas sector? • Why does the shale oil industry seem to be afraid of Joe Biden’s agenda?
Joe Biden, the Democratic Party candidate who has won the people’s verdict to occupy the White House for the next four years, has repeated more than once that he does not support the “green initiative” proposed by the left wing of his party, which will mean “preventing exploration and production of oil and gas.” But Biden’s election agenda includes a $2tn environmental plan that focuses on switching to renewable energy sources over the course of next 10 years. And it aims to reduce carbon emissions in the United States (completely) by 2035 and reduce the consumption of diesel fuel and gasoline by using electric energy as an alternative.

Out-of-hand factors:
It is a mistake to compare the amount of decrease in oil demand with the amount of Opec production cuts and draw conclusions on that.

In the end, there are the market fundamentals of supply and demand, which are affected by the policies of all producers and consumers of energy in the world, not just the United States, although it represents about 10% of the global energy market.
Thus, increasing oil production in Nigeria by a few thousand barrels per day affects the market more than the impact of the US administration’s policies, which may have a greater impact on the domestic energy market in the United States only in the medium to long term.
The same applies to the decrease in Libya’s production, for example, by a few thousand barrels per day.
Despite some optimism that the return of prices above the barrier of $40 a barrel could return some shale oil companies to work. The continued pressure on prices due to the imbalance of market fundamentals did not save these companies from the risk of stoppage or bankruptcy.
Then there is also the shift in the strategies of major oil companies to invest in renewable energy, to ensure that the major companies do not lag behind this rising global trend in the production and consumption of energy with low carbon emissions and generated from renewable and inexhaustible natural sources, such as the sun, wind, and others.
Undoubtedly, Opec + production cuts contributed to the doubling of oil prices, but it is wrong to compare the amount of reduced demand for oil with the amount of Opec production cuts, and to draw conclusions on that for many reasons, the most important of which is that some of the reduced production will not find a market in all cases.
The decrease in demand is present in the market for petroleum products, while production is crude oil, and the decline in the demand for refined petroleum derivatives varies widely.

The oil demand trap:
It was mentioned in the previous articles that one of the main problems that arose in the oil market due to coronavirus is the “oil demand trap.”
It is defined as the amount of decrease in demand for refined petroleum products resulting from the reluctance of people to engage in certain activities for fear of infection, regardless of price or income.
In other words, some people may not opt to travel for fear of infection, even if plane tickets decreased dramatically. Likewise, some others may not travel, even if their disposable income increased, for the same reason.
Some may not travel for fear of infection, even if governments provide incentive packages, encouraging people to travel by plane.
Travel may not return to pre-Covid levels, until we get rid of this virus completely!
Will the vaccine save the oil market?
The problems of the vaccine are numerous, the most important being that the quantities will be limited initially and supply regulated and controlled by the governments concerned.
Consequently, governments will determine who will receive the vaccine first. It appears from various government statements that priority will be given to frontline medical teams that deal with coronavirus patients. The general notion is that most people will not get it until the end of 2021 or in 2022, assuming that the vaccine rollout happens as expected in the next few weeks. If we make an assessment based on what is stated above, a vaccine against Covid-19 will not save the oil market in 2021.
And it is expected that the price of oil will fluctuate around $45 a barrel, and this is due to the lack of fuel consumption, the slowdown in the global economy and the abundance of oil supply.
 
The views/opinions expressed in this article are those of the author and do not necessarily reflect the views and opinions of Al Bawaba Business or its affiliates.

© Gulf Times Newspaper 2021

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