Biden Pivots on Oil, Or At Least on Saudi Oil

The Biden administration has given up on a new Iran nuclear deal, and is pivoting back to the US’s traditional regional ally Saudi Arabia, with a visit from the president now set for next month. Biden will offer Saudi armaments in exchange for more OPEC oil production. This explains last week’s decline in global crude prices. At the same time, there are small signs of a thaw between the administration and the domestic fossil fuel industry, with White House entreaties to expand refinery capacity. Discounted Russian oil is finding a home in the developing world where fuel demand is increasing, allowing Russia to pivot away from developed world customers where demand is decreasing. European refining capacity remains a pressure point, with consumers preferring to avoid Russia-branded products in favor of other brands even if they rely on Russian crude. Ultimately the Ukraine crisis must end for global oil markets to stabilize. Even if a resolution involved annexation of Donbas, we think trade patterns between Europe and Russia will be quickly restored, and energy markets can return to pre-Ukraine norms. Absent a “black swan” from Ukraine, we’ve seen the peak in oil prices.