US oil industry awaits new era under Biden

In April 2018, with oil prices close to a three-year high of $ 75 a barrel, Opec ministers meeting in Jeddah were energetic. Then US President Donald Trump tweeted, “Looks like Opec is on this again. With record amounts of oil everywhere, including fully loaded ships at sea, oil prices are artificially very high! Nothing good and will not be accepted!

This marked the start of an era of unprecedented presidential intervention in the oil markets. But things are about to change, with timid new social media chairman Joe Biden unlikely to lead petro-diplomacy by tweeting, and more focused on the transition to cleaner fuels.

Mr. Trump’s approach was often contradictory and defied convention. But it has hit its target more often, industry experts say.

“The president took to Twitter instead of sending the secretary of state for the Middle East or the US ambassador to Saudi Arabia,” said Amy Myers Jaffe, a professor at Tufts University near Boston, Massachusetts. “And the problem was, it was effective.

What started with Mr. Trump proclaiming “American energy dominance” and blaming Opec for not producing enough oil, culminated this year when he urged the producer cartel to raise prices to save the zone of American shale disaster.

While Mr. Trump’s Twitter thread has spoken of oil or Opec dozens of times since taking office – often as prices approach $ 70 a barrel – Mr. Biden can take a leaf from the book of the Obama administration. In eight years, the previous president’s White House has only mentioned the cartel twice on social media. For the most part, international oil has also sailed under the radar in politics.

With urgent tasks on Mr Biden’s plate – from the coronavirus pandemic and vaccine delivery to stimulating a struggling economy – petro-diplomacy will not be an immediate priority, analysts say.

Gone is the influence of Harold Hamm, the billionaire chief of shale producer Continental Resources and Trump’s confidant who has frequently spoken to the president as oil prices plummeted this year, according to a recent note from the cabinet of Rapidan Energy advice. This will be followed by environmental experts such as Gina McCarthy, a former environmental regulator who will now coordinate policies as a national “climate czar”.

Some U.S. oil producers fear the shift in focus – and Mr Biden’s plans for tougher pollution rules and drilling limits – will affect the country’s crude production.

Scott Sheffield, director of shale producer Pioneer Natural Resources, recently told the Financial Times that U.S. production – down 15% from its all-time high this year – could drop 3% over the next decade because of M Biden.

But despite Mr. Trump’s backing, the experience of the oil industry and in particular of its investors during the Trump years has been markedly mixed.

Even before the pandemic, the shale industry was operating on steam, hit by a business model that achieved rapid supply growth but destroyed billions of dollars in capital.

Wil VanLoh, the head of private equity group Quantum Energy Partners, told the FT that the relentless pursuit of production growth had “drilled the heart of the watermelon”, sparking a war of words in the shale.

The surge in the number of bankruptcies and the layoffs of tens of thousands of workers have revealed a sector in great distress. The most prestigious company to hit the wall was Chesapeake Energy, pioneer of the shale revolution. But the pain has also spread to the top of the US oil industry. ExxonMobil, once the world’s largest company by market valuation, suffered three consecutive quarterly losses and spent 2020 cutting capital spending and jobs. Rival Chevron was also forced to cut back hard.

The S&P 500 Energy Index, made up primarily of oil and gas companies, fell by more than a third between Mr. Trump’s assumption of office in January 2017 and the start of the crash in March of this year, and lost 11 % more since. Under Mr. Obama, the index has increased by more than half.

A resumption of these actions now seems to be underway, despite the electoral victory of a presidential candidate who declared during the campaign that he wanted to “get out of the oil industry”.

While the new president will be under pressure from his own base to move forward with his proposed clean energy revolution, some oil industry insiders remain optimistic.

“I have no doubts that Joe Biden, who spent years and years on the Senate Foreign Relations Committee, understands the difference between a time when the United States depended on foreign energy and the years we are in now, which is a time of plenty, ”said Mike Sommers, president of the American Petroleum Institute.

Others agree that Mr. Biden will have little choice but to engage in international oil policy. Mr. Trump was not the first president to call on Opec to lower oil prices – or to ask the cartel otherwise. George HW Bush also urged Saudi Arabia to cut production and raise prices to save US crude producers.

International economic stability still depends on keeping oil prices low enough, Jaffe said, while many American jobs increasingly depend on keeping them high enough.

The crash that swept through the oil market this year would also have troubled Mr Biden, said Sarah Ladislaw, head of the energy security and climate change program at the Center for Strategic and International Studies in Washington. “I don’t think you would have read it so publicly.”

But while the new leader is likely to be less vocal than Mr Trump on oil and less inclined to chide Opec on Twitter, Ms Jaffe has suggested that no US president, even a president pushing an energy platform. clean, could not ignore the oil market.

“Global economic leadership means that the United States has to worry about either too high an oil price or too low an oil price,” she added. “We are still the oil leader in Goldilocks.”