Will US shale continue its dominant path to export growth under Joe Biden?

Public policy is showing signs of shifting under the new administration, with Opec forecast to produce more than double US crude oil output this year

Drilling rigs at California's Monterey Shale formation. According to the US Energy Information Administration, the country's domestic oil industry suffered considerably during the first and second waves of Covid-19. Getty ImagesShow less

The end of a long and difficult pandemic year for oil marked a changeover of the government in the United States, which is now led by President Joe Biden.

What lies ahead could mean a major change for the oil markets.

Ex-president Donald Trump reshaped the country's shale oil policy with an eye to dominate global energy markets and in just four years, the country’s exports became a force to be reckoned with.

Between 2016 and 2020, US shale grew aggressively and established a balance of market power with Opec. The group of oil-producing countries constrained production several times amid negative sentiment, supply chain disruptions during the US-China trade dispute and their subsequent impact on oil demand.

Both Opec and US shale tumbled into the pandemic precipice last year.

Low point for Opec export revenues in 2020

In 2020, Opec’s oil export revenues fell to their lowest point in 18 years, according to an estimate by the US Energy Information Administration. The coronavirus pandemic and low demand for oil pushed export revenues down to $323 billion for the year, compared with $595bn in 2019, the EIA said.

Opec’s export revenues for 2021 may rise to $397bn provided production cuts ease and global oil demand recovers, according to the EIA. In its January short-term outlook, the EIA forecast Brent crude price to average $53 per barrel in 2021 and 2022, up from $42 a barrel in 2020.

The US domestic oil industry also suffered considerably during the first and second waves of Covid-19. Energy giant Halliburton lost $2.9bn in 2020 and the country’s largest energy company – Exxon Mobil – said all four quarters of 2020 were loss-making.

EIA expectations for 2021

After a devastating 2020 for the international oil markets, what does 2021 hold for the rivals?

Global liquid fuel consumption is expected to rise by 5.6 million barrels per day in 2021 and 3.3 million bpd in 2022, according to the EIA.

Opec expects crude oil to remain a vital part of the energy mix, while acknowledging that climate change and the move to cleaner energy is a top priority

In 2020, US domestic crude oil production is expected to have fallen to 11.3 million bpd from a record high of 12.2 million bpd in 2019. Another slide to 11.1 million bpd from 11.3 million bpd is expected in 2021 before production rises to 11.5 million bpd in 2022.

Opec is forecast to produce more than double US crude oil production at 27.2 million bpd in 2021, up from an estimated 25.6 million bpd in 2020, the EIA said.

This analysis puts Opec firmly ahead of the US shale industry, at least in terms of output.

US energy policy under Biden

Much of the industry’s assumptions are based on US shale continuing the path to export growth, but what if the new administration is less supportive?

Public policy already shows signs of shifting as energy companies may face increased climate risk disclosure rules and an end to new drilling permits for federal land, along with the elimination of tax subsidies for the oil and gas industry.

Nonetheless, now that oil export revenues contribute to GDP, it is unlikely that there will be a full reversal to the US’s previous position of being a net crude oil importer, especially now that the US economy has to recover as quickly as possible from the pandemic. Vaccination programmes are in motion, but will take many months to reach the goal of immunising at least 70 per cent of the population.

Green energy

In the coming years, Opec and US shale face rising competition from green energy companies. Indeed, many of the major fossil fuel companies are shifting their production to green energy sources as climate change policies affect funding and demand. Opec expects crude oil to remain a vital part of the energy mix, while acknowledging that climate change and the move to cleaner energy is a top priority.

To conclude, Opec and US shale still have the brakes on because of anaemic demand for crude oil. Barring an unforeseen development in the US policy on exports, the rivalry is set to continue as oil-producing countries strive to recover from the pandemic. The next two years could see major changes in the balance of market power.

Hussein Sayed is the chief market strategist at FXTM