Comment – Biden’s slim advantage in U.S. poll spooks oil markets

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With a closely-fought election edging slightly towards Democrat nominee Joe Bien, crude oil prices are edging downwards in anticipation of more fuel supplies reaching global markers.

On Thursday, Brent crude fell 0.4% to $41.06 a barrel and West Texas Intermediate down 0.7% to $38.87 a barrel.

A Biden administration is seen as less bullish for oil as its expected that a Democrat-led government would reinstate an agreement with Iran that allowed the Middle East nation to sell its oil subject to strict international monitoring and checks on its nuclear program.

The Trump administration had revoked the agreement with Iran and imposed sanctions that forbade all nations from buying its oil. 

If a Biden administration assumes power, it is also likely that the U.S. may rejoin the Paris Climate change agreement and pledge billions of dollars in green energy research program — which will again weigh on oil demand.
Biden plans to spend $300 billion on research and development over four years, focusing on renewable-energy technology.

Currently, the federal government spends less than $7 billion annually on such programs.

To be sure, oil prices have come under pressure recently with a fresh surge of Covid infections in parts of Europe and the U.S., creating uncertainty about demand. 

More pressure could build up

In the election battle drags on due to legal challenges to the entire process –with Trump having criticised the system of postal ballots —  the resulting uncertainty may also impinge on oil prices. This is more so as a volatile dollar may affect oil prices internationally since the commodity is priced in the U.S. currency.

To be sure, Biden has denied Trump’s assertion that a Democrat government will discourage the US fracking industry — which has made the country not only self-sufficient in oil, but the world’s largest producer.

But given Biden’s promise for more support to renewable energy, its likely that the US oil industry — already struggling with low demand — may not find as much support as under the Trump administration.

In fact a Democrat government is likely to be tougher on the oil industry rather than the natural gas sector.

Beyond the U.S. polls, global investors will be closely monitoring whether a meeting of the Organization of Petroleum Exporting Countries (OPEC) in January, which is due to review production cuts, takes place or not.

For the moment, it appears that the meeting may be deferred, which may keep oil prices from falling sharply.

One bright spot is that world’s largest energy consumer China’s economy is on the mend, which will support oil consumption.

Biman Mukherji is a columnist and consulting editor at Indoasiancommodities.com. He has worked for international news organisations such as Reuters, The Wall Street Journal as well as for newspapers like The Times of India. He can be reached at biman.mukherji@indoasiancommodities.in

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