Today benefit : Is it related to Biden’s policy that oil prices once approached a three-year high ? 2021
London Brent crude oil prices are rapidly approaching $75 per barrel and WTI crude oil futures are approaching $73 per barrel (the highest price since October 2018), which may be another good time to comment on the impact of Biden’s three decrees on the oil market. In this article, we will also discuss the future market
1- Cancellation of Keystone XL Pipeline Construction Permit
The day after Biden took office, he couldn’t wait to revoke the construction permit for the Keystone XL pipeline, which was immediately halted, leaving hundreds of contractors losing their jobs.
Initially, only Alberta, Canada, and TC Energy (TRP), which is responsible for pipeline construction, may have sought damages from the Biden administration. By recently, the company has even announced that it will permanently cancel the project, and other legal actions may have lost their meaning. By March, however, 21 provinces had filed lawsuits against the Biden administration.
The impact of the above news on oil prices is not obvious, probably because the pipeline has not yet been completed. However, if the Biden administration begins to try to close existing domestic oil pipelines in the United States, the price of oil and gasoline may be affected. For example, as we saw last month, Colonial Pipeline temporarily interrupted pipeline transportation in several eastern states due to hacker threats, which caused shortages of gasoline and diesel and caused prices to soar.
It should be noted that Minnesota recently upheld a ruling allowing Canadian pipeline company Anqiao to expand pipeline 3 from Alberta to Wisconsin, which will be able to deliver about 760,000 barrels of oil a day after the expansion, which will be completed in the fourth quarter of 2021; in addition, a A federal judge in the United States approved the Dakota pipeline to continue to operate while an environmental assessment is under way, which is not expected to be completed until March 2022.
Both of the above lawsuits may turn to a disadvantageous direction for pipeline companies, and if so, it is a driving force for oil prices.
At present, it seems enough to cancel the construction permit of the Keystone XL pipeline, but his team may feel the need to further appease radical Democratic anti-fossil fuel personnel without ruling out the Biden administration’s more aggressive anti-pipeline policies.
2- Suspension of Oil and Gas Exploitation Leasing on Federal Land and Waters
Another relatively swift move taken by the Biden administration after taking office was to suspend the licenses for businesses to develop new oil and gas drilling on federal land. The federal government has not issued any new licensing guidelines for the past six months.
Similarly, when the decree was first announced, it did not immediately have much impact on the market. But oil prices are low, and many drilling companies have obtained a large number of mining permits. Since then, however, the decision has actually been driving up oil prices significantly because it has affected the willingness of American oil companies to drill new wells – according to a Dallas Federal Reserve survey of domestic oil companies, 58% of executives expressed concern.
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“The strengthening of federal regulation will make the business unprofitable.”
This also makes them hesitate to invest in drilling new wells.
Of course, there are other factors in the rise in oil prices, that is, the rise in oil demand and the decision of OPEC+ to maintain oil production quotas.
It should be noted that the latest news shows that a federal judge in Louisiana issued a preliminary injunction earlier this week to prevent the Biden administration from suspending the issuance of new oil and gas leases. In response to a lawsuit filed by 13 states, the federal judge said,
Without congressional approval, Biden has no right to stop renting federal land for oil and gas drilling.
However, traders should not interpret this news as a victory for oil companies. In fact, under this ruling, drilling activities are unlikely to increase. On the contrary, it makes the regulatory environment of oil companies more complicated and creates more instability. In the face of regulatory uncertainty, enterprises are usually reluctant to expand investment, and oil companies are skeptical about the future.
Therefore, the market should not expect oil prices to fall as a result.
3- Suppress Methane Emissions
As early as January, the Biden administration directed the EPA to propose a rule aimed at suspending, modifying or revoking a decision under the Trump administration that repealed a methane emission regulation issued by the Obama administration, which requires companies to monitor methane leaks upstream and midstreams.
Biden’s new rules will be introduced by September this year. It is not clear whether it will simply restore Obama’s policies or propose stricter regulations. If it is simply a return to the rules of the Obama era, most major oil and gas companies will not be affected much, because they have adjusted their strategies to comply with the regulations before.
However, smaller oil companies will be hit, because they will be forced to invest in expensive testing systems. However, because last year’s oil price fell, which helped the market eliminate some weaker and insolvent companies, reinstatement of this regulation is unlikely to affect the current oil and gas supply situation.
However, the market should also be prepared that the new rules may be more stringent than Obama’s rules. Harder rules may affect future companies’ investment in new drilling, thus limiting future supply in the United States and driving up oil prices.
The Biden administration is not fully responsible for the current rise in oil and gas prices, and rising oil demand and OPEC+ policies are also more direct reasons.
But Biden’s policies have played a major role in stopping U.S. oil production, and these effects could have a bigger impact in the coming months. Regulatory uncertainty makes enterprises hesitate to invest in new drilling and infrastructure, which has a real impact on oil prices.