ASX energy stocks like Woodside (ASX:WPL) not pricing in a Biden win

If the polls are to be believed – and that's a big IF – ASX energy stocks like the Woodside Petroleum Limited (ASX: WPL) share price could be in for a tougher 2021.

| More on:
ASX oil shares recovery man holding up barrel of oil against rising chart representing rising oil search share price

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

If the polls are to be believed – and that's a big IF – ASX energy stocks like the Woodside Petroleum Limited (ASX: WPL) share price could be in for a tougher 2021.

The odds of Joe Biden unseating Donald Trump at the upcoming US presidential election just got better after the incumbent caught COVID-19.

A Biden presidency isn't a bad thing for the S&P/ASX 200 Index (Index:^AXJO) or global equities, but the same may not be said for the oil market.

ASX oil stocks facing the Biden blues

The oil price is already under pressure with the Brent crude benchmark falling to under US$40 a barrel when it was hovering near US$70 a barrel at the start of 2020.

This explains why the ASX energy sector is underperforming the broader market. The Oil Search Limited (ASX: OSH) share price crashed by 65%, the Woodside share price lost more than half its value and Santos Ltd (ASX: STO) tumbled 43% since January.

As mentioned, there may be no light at the end of the tunnel if Biden takes over the White House. There are two significant consequences for the oil market under a Biden presidency, according to the Financial Times.

Two big impacts from a Biden presidency

The first is obvious. Biden committed to re-joining the Paris Climate Agreement, pledged to spend US$2 trillion on clean energy and decarbonise the US economy.

His policy stands in sharp contrast to Trump, which has gone out of his way to support US oil and prop up the US shale producers.

The other impact from a Biden win is the possible dismantling of the OPEC+ production cuts. OPEC, led by Saudi Arabia, struck a deal with other major oil exporters like Russia to limit supply of crude to artificially put a floor to prices.

But Saudi Arabia was reluctantly dragged into the deal in April by Trump, who threatened to suspend US military support to the country.

Combustible mixture of oil and politics

Trump did this to win support in key battleground states that rely on the US shale industry, while the Saudis abandoned their resolve to teach Russia a lesson for not sticking to quotas.

The FT speculates that Biden won't be so quick to pursue a similar policy as the clean energy transition becomes his top priority.

Adding fuel to the fire

What's more, President Biden will likely reopen Iran's oil spigots – adding additional supply to a market experiencing weak demand.

Biden indicated he will recommit the US to the international nuclear agreement with Iran. This will pave the way for sanctions against the country to be lifted for the first time since 2018.

Oil investors should be on alert. A Democrat victory will have both short- and medium-term negative implications for the sector. These risks are not priced into markets.

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. Connect with me on Twitter @brenlau.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Resources Shares

a sad looking engineer or miner wearing a high visibility jacket and a hard hat stands alone with his head bowed and hand to his forehead as he speaks on a mobile telephone out front of what appears to be an on site work shed.
Resources Shares

Down 14% in 2024, why is the BHP share price sliding again today?

ASX 200 investors are bidding down the BHP share price on Wednesday.

Read more »

A mining employee in a white hard hat cheers with fists pumped as the Hot Chili share price rises higher today
Resources Shares

These ASX 200 mining stocks could rise 40% to 50%

Analysts think these miners are dirt cheap at current levels.

Read more »

Image from either construction, mining or the oil industry of a friendly worker.
Resources Shares

Fortescue share price leaps 5% as electric machinery makes a milestone

Fortescue is charging ahead with its electric mining ambitions.

Read more »

rising mining asx share price represented by happy woman miner in hard hat
Resources Shares

Why the BHP share price crushed the benchmark this week

BHP shareholders enjoyed a rewarding week.

Read more »

A man wearing a hard hat and high visibility vest looks out over a vast plain where heavy mining equipment can be seen in the background.
Dividend Investing

Here is the profit forecast to 2026 for BHP shares

Let’s unearth how much profit this miner could make.

Read more »

Female miner standing next to a haul truck in a large mining operation.
Resources Shares

Is the worst of the selling now over for ASX iron ore shares?

ASX iron ore giants like BHP, Rio Tinto and Fortescue rebounded this week after falling hard in 2024.

Read more »

Three satisfied miners with their arms crossed looking at the camera proudly
Resources Shares

Why are ASX 200 mining shares smashing the benchmark on Wednesday?

Rio Tinto, BHP and Fortescue shares are all charging higher today.

Read more »

Two miners standing together.
Resources Shares

Why is the South32 share price getting battered today?

ASX 200 investors are bidding down South32 shares today.

Read more »