Biden’s Last-Minute Offshore Drilling Ban

Key Points:
– Ban protects 625 million acres of federal waters from new oil and gas development
– Trump pledges reversal but faces legal hurdles without Congressional support
– Decision impacts East, West coasts and parts of Alaska while preserving current operations

President Joe Biden has announced a sweeping ban on new offshore oil and gas development across vast stretches of U.S. coastlines, creating a potential environmental legacy that his successor may struggle to dismantle. The executive action, protecting 625 million acres of ocean, represents a significant move in Biden’s climate agenda just weeks before the presidential transition.

The ban covers federal waters off the East and West coasts, the eastern Gulf of Mexico, and portions of Alaska’s northern Bering Sea. While largely symbolic, as it doesn’t affect areas with active drilling operations, the decision aligns with Biden’s broader environmental goals, including his commitment to conserve 30% of U.S. lands and waters by 2030.

The timing of this decision carries particular significance, as President-elect Donald Trump has explicitly stated his intention to reverse the ban immediately upon taking office. However, legal precedent suggests this may be more challenging than anticipated. A 2019 court ruling established that while the 70-year-old Outer Continental Shelf Lands Act grants presidents the authority to withdraw areas from drilling, it doesn’t provide the power to reverse such withdrawals without Congressional action.

Industry impact appears limited, as only 15% of U.S. oil production comes from federal offshore acreage, primarily in the Gulf of Mexico. This share has been declining over the past decade as onshore drilling, particularly in Texas and New Mexico, has transformed the United States into the world’s leading oil and gas producer.

The American Petroleum Institute has criticized the decision, arguing it threatens energy security and urging policymakers to reverse what they term a “politically motivated decision.” Conversely, environmental groups like Oceana celebrate the move as a victory for coastal communities and marine ecosystems.

The ban’s geographical scope notably includes areas where Trump himself had previously prohibited drilling during his re-election campaign, including waters off Florida, Georgia, South Carolina, North Carolina, and Virginia. This overlap highlights the bipartisan nature of coastal protection concerns, as many Republican-led coastal states have historically opposed offshore drilling due to its potential impact on tourism.

Biden’s decision invokes the memory of the 2010 Deepwater Horizon disaster, arguing that the minimal drilling potential in the protected areas doesn’t justify the public health and economic risks associated with future leasing. The administration emphasizes that the ban aligns with both environmental protection goals and practical risk assessment.

Looking ahead, the ban’s durability will likely depend on Congressional willingness to intervene, as well as potential legal challenges. The decision adds another layer to the complex relationship between federal energy policy and environmental protection, setting up a significant early test for the incoming Trump administration’s energy agenda.

Russian Export Ban May Push Crude Oil Higher

Oil prices climbed over 1% Friday after Russia banned diesel and gasoil exports. The move aims to increase Russia’s domestic supply but reduces the global oil market.

West Texas Intermediate crude climbed back above $90 per barrel following the news. Brent futures also gained, topping $94. Energy analysts say the Russian ban will likely sustain upward pressure on oil prices near-term.

Russia is a leading diesel producer globally. How much the export halt affects US fuel prices depends on how long it remains in place, says Angie Gildea, KPMG’s head of energy. But any drop in total global oil supply without lower demand will lift prices.

The ban comes as US gas prices retreat from 2022 highs, now averaging $3.86 nationally. Diesel is around $4.58 per gallon. Diesel powers key transport like trucks and ships. The loss of Russian exports could spur further diesel spikes.

However, gas prices may keep easing for most of the US, says Tom Kloza of OPIS. Western states could see increases.

Kloza believes crude may rise $2 to $3 per barrel in the near-term. But gasoline margins are poised to shrink even if oil nears $100 again. The US transition to cheaper winter fuel could also limit price hikes.

Oil has increased steadily since summer as OPEC+ cuts output. Saudi Arabia and Russia also reduced production. More Wall Street analysts now predict $100 oil in 2023.

Goldman Sachs sees Brent potentially hitting $100 per barrel in the next 12 months. Sharper inventory declines are likely as OPEC supply falls but demand rises, says Goldman’s head of oil research.

The White House has criticized OPEC+ for the production cuts. US gasoline demand recently hit a seasonal record high over 9.5 million barrels per day. Jet fuel use is also rebounding towards pre-pandemic levels.

Strong demand, paired with reduced Russian oil exports, leaves the market more exposed to supply disruptions. Hurricane Ian showed how quickly price spikes can occur.

Take a moment to take a look at other energy companies covered by Noble Capital Markets Senior Research Analyst Michael Heim.

The Biden Administration plans to keep tapping the Strategic Petroleum Reserve into 2023 to restrain cost increases. But further export bans or output reductions could overwhelm these efforts.

While tighter global fuel supplies might not directly translate to the US, Russia’s latest move signals volatility will persist. Energy prices remain sensitive to supply and demand shifts.

More export cuts could accelerate oil’s return to triple-digits. But for US drivers, the road ahead on gas costs seems mixed. Falling margins and seasonal shifts could limit prices, but risks linger.