Expect oil prices to rise under the new Biden administration.

In a recent note from Goldman Sachs, commodities analysts noted that Biden’s initial executive orders – which included restrictions on hydrocarbon leasing in North America, drilling, and pipelines – support oil prices.

On top of that, the administration’s comments “suggest no urgency in lifting sanctions with Iran,” keeping that country’s supply out of the market, keeping oil prices from falling.

The Trump administration's efforts to drill on federal land have been walked back, with the Department of the Interior imposing a 60-day moratorium on the sale of oil and gas leases on federal land. Goldman notes that this order is temporary but supportive of Biden's stated policies of halting the drilling on government-owned land. A more long-lasting moratorium could follow.

“As we argued ahead of the election, such actions point to both higher production and financing costs for shale producers in coming years as well as lower recoverable resources,” Goldman analysts wrote.

There was a flurry of permitting before the Biden administration and as a result, Goldman expects aggressive drilling to occur while the existing leases are in place — so much so that priorities will shift from private to federal land to pump before the time is up.

Higher demand is coming

Since the fall of 2018, oil prices have been in the $50 and $60 range; when the pandemic hit early last year, a lack of demand pushed prices down even further, at one point to under $20 in the spring. Since fall 2020, prices have risen modestly from the $40 range, almost back to 2019 levels of around $50 per barrel.

If supply is slightly more constrained under the Biden administration, the demand side looks strong, with the post-Covid economy and ramped-up fiscal spending later this year to be bullish for oil prices.

Goldman argues that with more disposable income and government spending through stimulus measures and Covid-19 relief, economic activity will pick up and demand for oil should be stronger by around 200,000 barrels per day.

A better vaccination campaign would be a factor as well.

“A faster vaccination roll-out would in turn accelerate the rebound in jet fuel consumption, which still accounts for more than half of the remaining lost oil demand,” Goldman wrote.

All in all, Biden’s policies support energy demand while restricting production or the forces that govern production, like financing and drilling, analysts wrote.

According to Goldman, this “will prove inflationary in coming years given the still negligible share of transportation demand coming from EVs (and renewables).”