US election: Biden win may “counter-intuitively” boost oil markets, says energy hedge fund Westbeck

Oil wells

A victory for Joe Biden in next month’s US presidential election may “counter-intuitively” help boost global oil markets, according to London-based energy-focused hedge fund Westbeck Capital.

The firm - whose flagship Westbeck Energy Opportunity Fund takes a long/short directional approach to international oil markets, trading equities, futures and options - outlined its bullish stance on the Democrat candidate in a market update this week.

The challenger’s proposals for a USD2.5-3 trillion fiscal stimulus would herald a short-term bump in oil demand, boosting both the US economy and also emerging market growth, since US dollar debasement would likely accelerate, the firm observed.

A Biden victory over Donald Trump on 3rd November could also translate into more headwinds for US production, due to a ban on new Federal leasing and much tighter rules around flaring, Westbeck added.

Westbeck has long taken a bullish stance on the commodity price, and offered predictions that US production will start declining again.

“Stars are aligning for higher oil prices in our view,” the fund manager said this week, pointing to a weaker dollar, a v-shaped economic recovery, a Covid-19 vaccine and “unprecedented” supply rollover, among other things.

“We believe that USD100+ oil is now a high probability in the next 2-3 years, and that after an -88 per cent correction from its 2014 highs, the E&P sector is ripe for a huge rebound.

“Counter-intuitively we believe a Biden sweep would be the most positive outcome for the oil markets.”

The commentary also weighed up how a Biden administration’s dealings with Iran would shape energy markets.

“Our checks in DC suggest a possible two-stage approach to lessening sanctions with half the current sanctioned barrels potentially returning in the second half of 2021 (700-800kbd) – a large amount but not a huge problem for the oil markets,” the note said, particularly if a coronavirus vaccine has been found and demand is on its way to normalising.

“We doubt Iran is at the top of Biden’s agenda.”

On the flip-side, a “surprise” Trump win would immediately strengthen US oil equities, while hedge funds’ long renewables/short oil equities bet – a “huge” position in the market, according to Westbeck - could see a short-term unwind.