US oil industry awaits new era under Biden

In April 2018, with oil prices reaching a three-year high of $ 75 a barrel, the Opul Ministers meeting in Jeddah were alive. Then US President Donald Trump sent a tweet: “It looks like Opec is up to it again. With record quantities of oil everywhere, including the fully loaded ships at sea, oil prices are artificially very high! Not good and will not be accepted! ”

This was the beginning of an era of unprecedented presidential intervention in the oil markets. But things are about to change, with social media-shy incoming president Joe Biden unlikely to tweet petro diplomacy, and more focused on the transition to cleaner fuel.

Mr. Trump’s approach was often contradictory and defied the convention. But he has regularly made his mark, say industry experts.

“The president went to Twitter instead of sending the Secretary of State to the Middle East or the U.S. ambassador to Saudi Arabia,” said Amy Myers Jaffe, a professor at Tufts University outside Boston, Massachusetts. , said. “And the thing about it is that it was effective.”

What began with Trump’s announcement of ‘American domination of energy’ and the enslavement of Opec because he did not produce enough oil culminated this year when he called on the producer cartel to raise prices to cover the US scale of to save a disaster.

While Trump’s Twitter feed has been talking about oil or Opec for decades since taking office – often when prices were near $ 70 a barrel, Biden may be able to take a leaf out of the Obama administration’s book. In eight years, the former president’s White House has mentioned the cartel only twice on social media. For the most part, international oil has also gone under the radar in policy.

With urgent tasks on mr. Biden’s plate – from the coronavirus pandemic and vaccine distribution to stimulating a battered economy – will not have immediate petro diplomacy, analysts say.

The influence will disappear from Harold Hamm, the billionaire head of shale producer Continental Resources and Trump confidant, who spoke regularly with the president when oil prices crashed this year, according to a recent note from consultant Rapidan Energy. Environmentalists such as Gina McCarthy, a former environmental regulator, will now coordinate the policy as a domestic ‘climate tsar’.

Some U.S. oil producers fear the shift in focus – and Biden’s plans for stricter pollution regulations and drilling restrictions – will hit the country’s crude production.

Scott Sheffield, head of shale producer Pioneer Natural Resources, recently told the Financial Times that U.S. production – down 15 percent from its historic high this year – could fall as much as 3 percent because of Mr Biden.

But despite the support of Mr. Trump, the experience of the oil industry and especially its investors during the Trump years is clearly mixed.

Even before the pandemic, the shale industry ran afoul of steam, plagued by a business model that achieved rapid growth in supply but destroyed billions of dollars in capital.

Will VanLoh, head of private equity group Quantum Energy Partners, told the FT that the pursuit of production growth “drilled” the heart out of the watermelon, causing an empty war of words.

The rising bankruptcy numbers and the layoffs of tens of thousands of workers have exposed a sector in deep distress. Chesapeake Energy, a pioneer of the shale revolution, was the largest company to hit the wall. But the pain also spread to the top of the U.S. oil industry. ExxonMobil, once the world’s largest company by market valuation, suffered three consecutive quarterly losses and spent 2020 to reduce capital expenditure and jobs. Rival Chevron also had to cut back hard.

The S&P 500 energy share price index, which consists mostly of oil and gas companies, fell more than a third case between Mr. Trump in January 2017 and the onset of the crash in March this year, and has since lost another 11 percent. Under Mr. Obama raised the index by more than half.

A recovery in these shares appears to be underway, despite the election victory of a presidential candidate who said during the campaign that he wanted to ‘transition from the oil industry’.

While the new president will be under pressure from his own base to continue his proposed clean energy revolution, some insiders in the oil industry remain ominous.

‘I am confident that Joe Biden, who has spent years and years in the Senate Committee on Foreign Relations, understands the difference between an era when the United States was dependent on foreign energy and the years in which we are now, what an era is abundant, ”said Mike Sommers, president of the American Petroleum Institute.

Others agree that Mr. Praying only once in office will choose to engage in international oil policy. Mr. Trump was not the first president to call on Opec to lower oil prices, nor did he ask the opposite in the cartel. George HW Bush also called on Saudi Arabia to reduce production and raise prices to save US crude producers.

International economic stability still depends on keeping oil prices cheap enough, Ms Jaffe said, while many U.S. jobs are increasingly dependent on keeping it high enough.

Sarah Ladislaw, head of the program for energy security and climate change at the Washington Center for Strategic and International Studies, said the accident that went through the oil market this year also affected Mr. “I just think you would not have read about it so openly.”

But although the new leader is likely to be less outspoken than Mr. Trump on oil and less likely to offend Opec on Twitter, Jaffe suggested that no US president, even one who drives a clean energy platform, can ignore the oil market.

“Global economic leadership means the US has to worry about too high an oil price or too low an oil price,” she added. “We are still the leader of Goldilocks when it comes to oil.”