What Biden's projected victory means for the energy industry

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Here's what you need to know:

  • Business Insider has projected that Joe Biden has won the presidency. Follow our coverage here.  
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  • Do you have feedback or story tips? Reach out to me at [email protected] 

There it is: After days of uncertainty and too many brain-eroding key race alerts, Biden is now projected to win the presidency, according to Business Insider. The Senate, on the other hand, appears likely to stay under Republican control. 

This week, I'll share some initial thoughts on what that means for the energy industry. (Hint: The pandemic is far more important.)

A TORC Oil & Gas pump jack near GranumReuters

A divided government could give fossil-fuel companies a boost 

Assuming Biden takes office and Republicans retain control of the Senate, oil companies could actually get a boost, according to analysts at Morgan Stanley. 

How that works: Without a Democratic majority in Congress, legislation proposed by Biden to restrict the oil and gas industry is "effectively off the table," the analysts said. 

  • That will give the oil industry a "tailwind," Morgan Stanley said, especially considering that Democratic legislation was already factored into the share price of oil producers ahead of the election.
  • What's more: "A clean energy standard, carbon tax, or an infrastructure bill with outsized support of clean energy (wind, solar, carbon capture, hydrogen, battery storage, and electric vehicles) may no longer be feasible," they said. 

Where stocks stand today: The Dow Jones oil & gas index is up more than 3% this week.

  • Here are 13 oil-and-gas stocks Morgan Stanley is betting will rise in the coming weeks.

What Biden can do: "It's pretty clear that Biden's legislative agenda vis-à-vis climate will go absolutely nowhere in Mitch McConnell's Senate," Pavel Molchanov, an analyst at Raymond James, said. "So the changes he will be able to make will be limited to executive actions." 

  • President-elect Biden can reverse Trump's rollback of fuel efficiency standards, for example, requiring new cars to have a higher MPG. 
  • He can also restrict leasing and permitting for fossil-fuel projects and rejoin the Paris Agreement (though that latter action would be largely symbolic). 

But: The US election is a pretty minor force shaping the oil and gas industry relative to the coronavirus pandemic and global energy transition. 

Oil prices are failing to recover due to new lockdowns fueled by the pandemic.Markets Insider

The impact of the US election on oil markets is more mixed — and pales in comparison to the pandemic

Oil cares about two things: Supply and demand. Right now, the price is down because the coronavirus pandemic is hamstringing demand for gasoline and jet fuel. The US election is largely irrelevant. 

  • Last week, oil prices hit a 5-month low, following announcements of new lockdowns in Europe. 
  • "It's the pandemic, not the US elections that matter for oil in the near term," JPMorgan said in a note Friday morning. 

That said … Biden's projected victory could shape long-term oil supply and demand to a small extent, nudging the price. 

Upside: Tighter regulations for the oil industry in the US could constrict supply, Morgan Stanley said. 

  • Though it would require legislation, Biden is also likely to try to pass a large stimulus that would be positive for oil demand, according to Rystad Energy. 
  • Rystad estimates that an additional $1 trillion in stimulus would amount to another 400,000 barrels per day of oil demand in 2021.

Downside: Higher fuel efficiency standards for cars would chip away at demand over the long term. 

  • Biden is expected to return to Obama-era fuel efficiency standards at a minimum, which would cut half a million barrels-per-day of oil demand by 2025, Rystad said.
  • Biden may also ease sanctions on Iran and Venezuela, which could flood the market with oil, Rystad and Morgan Stanley said. 

In other news: New pandemic-fueled lockdowns are undermining the recovery of oil markets, forcing analysts to further revise their price forecasts for crude, used in investment decisions. Read more here. 

Mark Schiefelbein/Getty; Skye Gould/Business Insider

A hub for our Exxon reporting

Exxon is losing money like never before, and it's downsizing as a result.   

  • For the first time on record, the firm reported a loss three quarters in a row, from January through September. 
  • Analysts expect the company to lose money in the last three months of 2020, as well, according to Bloomberg data. 

What that means: Layoffs, voluntary redundancy programs, and other cost-cutting initiatives. 

  • Click here to follow all of our reporting on Exxon. 

5 big stories overshadowed by the election 

  1. Norwegian oil giant Equinor, one of the world's largest energy firms, said it would become a net-zero producer by 2050, following in the footsteps of BP, Shell, and Total.  
  2. Shell posted a poll on Twitter this week asking readers what they're willing to do to help curb greenhouse gas emissions. It backfired. 
  3. In other Shell news, the European giant is closing a big refinery in the south that employs hundreds of workers, AP reports. 
  4. Sunrun posted earnings Thursday, which show the rooftop solar company rebounded in the third quarter after a pandemic slump. 
  5. President Trump ousted the Republican chairman of the Federal Energy Regulatory Commission, Neil Chatterjee. Commissioner James Danley will take his place, Utility Dive reports. 

That's it! Have a great, restful weekend.

– Benji 

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