OIL FUTURES: Prices slightly higher despite attack on Yemeni terminal, Biden withdrawal from election

Oil futures opened slightly higher July 21, appearing to shrug off news of an attack on Yemen's Hodeidah oil products terminal and news that US President Joe Biden was dropping out of the 2024 presidential election.

At 2200 GMT, NYMEX front-month crude was trading 45 cents higher at $80.58/b, while ICE front-month Brent was up 34 cents at $82.97/b.

In refined products, NYMEX front-month ULSD was up 1.20 cents at $2.4311/gal, while front-month RBOB was up 87 points at $2.4591/gal.

Biden dropped out July 21 following increased pressure from within his own party amid growing concerns that Biden would not be able to beat Republican candidate Donald Trump in the November election.

While Biden endorsed Vice President Kamala Harris to lead the Democratic Party, Harris still needs to be ratified at the Democratic Convention, which will be held Aug. 19-22 in Chicago. And many questions remain unanswered, including who Harris would pick as her running mate, assuming she is nominated.

"Biden's decision is neutral for global crude and refined product markets as there is no immediate impact on physical barrels," said S&P Global Commodity Insights analyst James Bambino. "However, Israel's attack July 20 on refined product storage at Yemen's Hodeidah port is an escalation in the wider conflict across the region which could indeed drive prices higher this week."

Yemen's Hodeidah port was still on fire on July 21 after Israeli bombs hit the oil products import terminal overnight as the Israel-Hamas war that has disrupted commercial shipping in the Red Sea since November spread to the south of the Arabian Peninsula for the first time.

The market "looks fairly steady which is almost amazing because of the heating up of the tensions between Israel and [Yemen's Houthi] rebels," said PRICE Futures Group analyst Phil Flynn July 21. "More than likely, we'll start pricing in the increasing the odds of a Trump presidency."

Equity markets "were cheered by the rising prospect of a Trump win in November coming out of the assassination attempt on July 13. Conversely, some of the losses in equity markets late this week were from rising concerns that Biden was going to drop out of the race. That creates uncertainty and markets do not like uncertainty," Commodity Insights analyst Roger Bernard said July 19.

Trump has consistently promised that under his future administration the US will "drill, baby, drill." The Republican Party platform approved by convention delegates July 15 includes one paragraph on energy policy, promising to "Unleash American Energy" by "lifting restrictions on American Energy Production."

And Trump's selection of Republican US Senator J.D. Vance of Ohio as his running mate aligns with the former president's goals to reverse many of the Biden administration's energy and climate policies, observers said.

American Petroleum Institute members are largely supportive of Trump's energy agenda, API CEO Mike Sommers said at the Republican National Convention July 15, according to a MarketWatch report. However, Sommers also expressed some concerns about Trump's plans to increase import tariffs, which could impact exports of US crude and refined products.

Harris is considered the standard bearer of Biden's environmental policy, so if she wins the Democratic nomination for president little is expected to change in the US refined product arena.

However, some refined product market participants are concerned that her polling numbers are weak, and Biden's withdrawal is essentially giving Trump the election, which could threaten the Inflation Reduction Act going forward, negatively impacting renewable fuels projects already feeling pressure from weak economics.

National Ocean Industries Association (NOIA) President Erik Milito stressed the importance of the US offshore oil industry July 21.

"As we move towards the next election, NOIA will continue to underscore the critical importance of fostering a strong offshore energy industry. We are committed to ensuring that the next Administration, regardless of party or candidate, understands the vital contributions of domestic energy to America's prosperity," Milito said in a statement.

Biden leasing plans

Biden as a candidate pledged to end fossil fuels and as president halted offshore oil and gas leasing for a period. But during his administration production of oil and gas has reached record levels. While the bulk of those production increases have come from state lands, notably Texas and New Mexico, the US Gulf of Mexico is seeing the strongest offshore activity in a decade.

US oil output in April topped 13.25 million b/d, the latest official figures from the US Energy Information Administration show, while natural gas output was nearly 124 Bcf/d.

Offshore, the US Gulf – which has at intervals been called the "Dead Sea" as construction of marine infrastructure became too costly during periods of low oil prices to justify further development spending – is now blossoming,

Upstream companies are once again chasing ultra-deepwater "elephant" fields, aided by new technologies that allow production in high-pressure, high-temperature regions that previously were not producible.

Still, questions remain about offshore activity down the road. The Department of Interior finalized the 2024-2029 National Outer Continental Shelf Oil and Gas Leasing Program in December 2023 with the fewest oil and gas lease sales in history, and 2024 will mark the first year since 1966 without an oil and gas auction held for acres in federal waters.