How a Biden presidency may lead to increased supply in the oil market

  • A Biden presidency could bring 1 million barrels per day of Iranian oil back into the market, but lead to lower demand in the long run because of environmental concerns, said David Fyfe of Argus Media.
  • On the flip side, the Democrat's policies on climate change — including re-entering the Paris Climate Accord — could be "bearish" for demand over the long run, he said.
  • Fyfe also said that his base case is for a "steady recovery" in oil, and that prices could return to the $50 to $55 range by late 2021.

SINGAPORE — A Biden presidency could bring 1 million barrels per day of Iranian oil back into the market, but lead to lower demand in the long run, an economist said this week.

That's because Democratic presidential candidate Joe Biden is likely to reestablish relations with Tehran if he is elected, but introduce environmental policies that limit U.S. oil and gas, said David Fyfe of Argus Media.

"Arguably, a Biden presidency would move fairly rapidly toward some sort of rapprochement with Iran," he told CNBC's "Capital Connection" on Friday.

"That of course could lead to maybe up to a million barrels a day of Iranian oil coming back onto the market," he said. "It might not happen immediately, but you could see that happening within the sort of first six months of a Biden presidency."

By contrast, the Trump administration has put maximum pressure on Iran, which has seen heavy economic sanctions imposed on the Islamic Republic, including on its oil exports.

Biden has been leading President Donald Trump in multiple polls, including one by NBC News, which shows that he is up more than 10 percentage points, 51.6% compared to 41%.

On the flip side, the Democrat's policies on climate change could tighten the market over the long run.

"A Biden administration would try to get the U.S. back into the Paris Climate Accord," Fyfe said. "Therefore, over the longer term, it might actually be relatively bearish in terms of restraining hydrocarbon demand in the U.S. going forward."

Biden last year announced a climate plan that would see $1.7 trillion invested into clean energy research and changes in infrastructure. He could also impose restrictions that would further slow the growth in U.S. shale oil and gas production, said Fyfe.

$50 to $55 oil by late 2021

Separately, he said Argus Media's base case scenario is for a "steady recovery" in the oil market, assuming Covid-19 cases do not surge and lead to widespread lockdowns.

Oil futures crashed when demand evaporated as the coronavirus crisis spread earlier this year and the market worried about an oversupply. If the virus situation doesn't escalate, the oil market should continue to recover, Fyfe said.

"Gradually, the 1.3 billion barrels of surplus oil that has accumulated in storage, that can be drawn down by the end of 2021, and that suggests that prices could recover to something closer to $50 to $55 by late 2021," he said.

"If we have a second spike in the virus and renewed shutdowns on a broad basis, then really, all bets are off and OPEC will be scrambling to try and stitch together a new deal on supply."

OPEC in April agreed to cut 9.7 million barrels per day and gradually increase production until April 30, 2022. 

Brent crude was down 0.62% at $43.07 a barrel during Asia's late-afternoon trading, while U.S. West Texas Intermediate crude futures were down 0.68% at $40.91.

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