Oil Under Assault

 Oil is under assault both figuratively and metaphorically as the Biden Administration War on Oil goes all out and weak economic data in the U.S. sinks oil prices early. Stocks plunged after a miss on Durable Goods and oil companies fall on warnings from S&P about downgrade risks because of their association with Climate Change. Exxon Mobil Corp. (XOM), Royal Dutch Shell Plc (RDS-A), and other major energy companies due to “greater industry risk” associated with climate change. “S&P Global Ratings believes the energy transition, price volatility, and weaker profitability are increasing risks for oil and gas producers,” it said in a statement on Tuesday. To factor this change, the rating agency said it had revised its industrywide risk assessment for the oil and gas sector to “moderately high” from intermediate.

Image Source: Pixabay

That risk was made clear as Fox News Reported that the Biden Administration is set to extend a ban on new leases for oil and gas drilling and fracking on federal lands and waters for one year as it attempts to combat climate change, a source told FOX Business. The decision comes days after President Biden signed an executive order that putting drilling and fracking on hold for 60 days. Biden on the campaign trail called for the U.S. to phase out its dependence on fossil fuels. 

While that is ultimately very bullish for energy prices, we are taking a pause on macro concerns. Biden policies right now are rating the risk of stagflation and marketers are wary of a potential Biden Economic fallback. If you are trying to reduce growth and raise oil prices Present Biden is doing a fantastic job. US Shale is expected to try to raise output but will be thwarted by capital constraints.

What will a Biden ban cost if he eventually bans fracking? Well according to the U.S. Chamber of Commerce a ban on fracking would eliminate 19 million jobs between 2021-2025 while reducing U.S. Gross Domestic Product by $7.1 trillion over the same period.  Energy prices would skyrocket, with natural gas prices rising by 324 percent, causing household energy bills to quadruple and the cost of living to increase by $5,661 for the average American. By 2025, the price of gasoline would double, and government revenues would plummet by almost $1.9 trillion. Go, Joe! 

API inventories were supportive for oil, but products were a bit negative. The API reported that U.S. crude inventories fell by 5.3 million barrels vs expectations of a 430k barrel increase build.  US gasoline and distillate inventories increased by 3.06 million barrels and 1.40 million barrels, respectively, in the week ended Jan. 22. The EIA should be even more supportive for a cure while products are the wildcard.