If the prospects can be explained in one sentence, although a Biden win could benefit demand in the short term, say next year, his approach to foreign relations could also bring more supply to the market, thus a conservative oil-friendly Trump win could be the most bullish immediate outcome for oil, and analysts feel.

The market expects a relief rally on a clear result, which for the moment looks unlikely, but analysts are wary of downside pressures thereafter as focus returns to Covid-19. Oil has made some gains in recent days, but these have admittedly nothing to do with fundamentals, with the consequences of pandemic, which has ravaged the energy markets, continuing to remain the central focus.

A Biden win is believed to carry supply risks as he may ease relations with Iran and Venezuela, which in turn could unleash 2 million bpd of oil or more to the market as early as 2021. While analysts expect a Biden administration to be bearish for supply reasons, his presidency is seen to be bullish for demand in the short term. If Democrats were to take complete control of Congress and the presidency, one of their first priorities would be to pass a hefty economic relief package. An additional $1 trillion in incremental stimulus in the US is estimated to translate into roughly 400,000 bpd of increased oil demand in 2021.

Besides the stimulus, trade relations with China could be another area where a Biden presidency could be positive for short-term demand. One key sign to watch will be who Biden appoints to US trade representative. If he appoints a representative from the progressive wing of the Democratic Party, that could signal that tariffs—and protectionism— might be here to stay. However, if he appoints someone more in the mould of Clinton- Obama-era trade policy, trade barriers may be lifted after some sort of concession is extracted from China.

If Biden goes with a return to globalization trade policy, this also carries upside potential long-term oil demand growth in emerging markets. A step back from the brink of a trade war is estimated to have a GDP growth impact between 1-2 per cent and add 500,000 bpd of oil demand globally by 2025, according to energy specialists Rystad Energy.

However, beyond the short term, the demand picture under a Biden presidency looks less bullish. A Biden administration is expected to reverse Trump’s rollback of fuel economy standards, and potentially significantly strengthen such regulations. A return to Obama-era fuel economy standards would lead to 500,000 bpd of lower oil demand by 2025.

Under Biden, the US is seen likely to re-engage Iran in nuclear talks and in exchange, let Tehran restart oil exports. Rystad says it is unclear whether Biden would prioritize an Iran nuclear deal in his first 100 days, but given the policy has a strong international coalition in the form of EU and Russia behind it, it could be a ‘quick win’ on the international stage.

Iran has large volumes of oil in storage, which it would be able to export immediately and help bridge and shortfalls in production restart. Rystad analysis hows a ramp up from the current 2.5 million bpd to 3.7 million bpd by the end of 2022. Many political pieces would have to fall into place for this to become a reality, but there is no problem with capacity.

With Biden in the White House, Russia and China will see less risk in investing in Venezuela, whereas under Trump, it was too risky. Rystad has plotted three scenarios: status quo, a slight recovery that would see output get a boost to 700,000 bpd towards 2024, and a more robust recovery that would bring production back to the range of 1.0 million bpd to 1.2 million bpd in 2023 and 2024.

One of the clear limiting factors for oil demand in 2020 has been the United States’ ability to control the spread of Covid-19. Although it is difficult to forecast the impact from the two candidates’ approaches to Covid-19 on oil demand, a faster resolution to the pandemic would certainly be bullish for oil demand.

Analysts feel that the energy transition will likely plough ahead in the medium and long-term under either a Republican or Democratic administration. Technological advances and price incentives are expected to propel this in the long-term. In some sectors such as aviation, where oil substitution is either too expensive or technologically complex, sustained oil demand growth is forecast through the mid-2020s. (IPA Service)