Publications: Notes at the Margin

The 2021 Oil Market as of January 1; The Oil Industry Lucks Out with "Jimmy" Biden (January 4, 2021)

 

We cover two topics in this first issue of 2021. The report first focuses on the oil market for 2021. As explained below, global supply and demand at the time of the virtual meeting of OPEC ministers and representatives today, January 4, looks to be in balance. We base this conclusion on data developed from commodity markets, not on unreliable supply and demand data. The information derived from prices indicates that oil-exporting nations could increase production modestly in February without upsetting prices.

 

An increase may even be needed to arrest the recovery of US output. Several analysts have noted that OPEC does not want to “subsidize the return of US shale.” However, the data indicate that US shale recovery is underway, with or without a subsidy from OPEC. For this reason, the OPEC+ “coalition” (Bloomberg reporter Grant Smith’s term for the organization) probably needs to act now.

 

The second part of the report turns to the longer-term outlook for oil under “Jimmy” Biden. We call the president-elect “Jimmy” because developments during the transition period of his administration seem strikingly like the transition developments and first two years of the Jimmy Carter administration. Joe Biden has appointed John Kerry as his climate envoy with full membership in the cabinet, even though it is not a cabinet post. Forty-four years ago, President Carter appointed James Schlesinger as his special adviser on energy because the energy department did not exist.

 

Kerry will be responsible for bringing the United States back into the Paris Agreement and formulating US climate policy. Schlesinger oversaw the design of US energy policy and the establishment of the new Department of Energy.

 

Historians today rarely discuss Carter’ s energy policy. It was not a success. Congress failed to enact many key proposals even though Democrats enjoyed majorities in both houses. Carter’s oil policies failed largely because Russell Long, a Democrat from Louisiana, blocked them. Long was an institution by 1977, a friend of many, but a fierce defender of the oil and gas industry. Although always genial, Long was as intransigent as Kentucky’s Mitch McConnell is today. Almost no legislation affecting climate or oil and gas would pass during Carter’s tenure.

 

The election of two Democrat senators from Georgia this week would give the Democrats a little room to move because Vice President Harris would cast the deciding vote to break any tie. Even so, the Senate is unlikely to pass any significant changes to laws affecting oil.

 

Beginning in 2023, Biden and those seeking to limit carbon emissions from oil and gas will face even more daunting hurdles because Republicans will likely control the Senate and the House of Representatives. The Democrats have a three or four-vote House majority in the 117th Congress sworn in on January 3. Historically, the party in power loses seats in the mid-term election, meaning Republicans will likely take back the House in January 2023.

 

The Democrats’ prospects are made worse by the redistricting that will occur in accord with the 2020 Census. Democrat-leaning states such as California, Minnesota, Illinois, Michigan, and Pennsylvania will probably lose seats, while more conservative states such as Florida and Texas will gain.[2] Republicans control the redistricting process in most states, increasing the likelihood that the Democrat’s control of the House will end in 2023.

 

As explained in Section II, the oil and gas industries have little to fear from Congress. Yes, new regulations will be passed, and, yes, the US will move toward more electric vehicles, but a major transformation is not in the cards.

 

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