President Trump almost killed the oil industry and now President Biden's going to save it. At least for now.
That's what the stocks are saying and it makes sense when you think of it. Under President Trump we had unbridled drilling. It was almost embarrassing the lengths we were willing to go, including opening up the sacred Arctic National Wildlife Refuge for drilling.
It was all a part of a belief that we have abundant fossil fuels in this country, including coal, in some valuable states when it comes to the election, so why not exploit it.
The president didn't believe in global warming and he apparently never gave a second thought to whether there would be environmental consequences, everything from methane flaring, to oil spills from pipelines to another Exxon (XOM) Valdez, the disastrous oil spill off the coast of Prince William Sound in Alaska in 1989. It is not at all clear to me that the president had even heard of that 31-year-old accident.
We witnessed an insane race to the bottom of all of the oil companies that bid up the price of land and at the same time overproduced to the point of saturation. As the late Aubrey McClendon of Chesapeake (CHKAQ) fame always told me, unlike any other industry, oil people will drill and produce regardless of price. It's just who they are.
Well, they sure did it. As did the pipeline companies, which sensed a once-in-a-lifetime opportunity to build pipe out to pretty much any basin they would like.
Now, though, it looks like it is all coming to an end. A new, environmentalist president has been elected and he is thought to be ready to reverse these policies, many of which do not need congressional approval.
The betting is that he will curtail drilling, first on federal lands and then on non-federal lands, by making rules that forbid excess methane. That's going to drastically cut the ability to drill because methane is a byproduct of oil exploration. If he makes federal rules about methane you can see fracking being almost obliterated.
Given that the U.S. is the swing producer, prices will go up and the industry will be preserved, especially because the Covid vaccine should encourage more driving and more economic activity. Biden as the savior of the oil companies. Why it is safe to buy Pioneer (PXD) and Chevron (CVX) for now.
Second, the new president will speed up the closing of all coal plants as a way to transition to a carbon-free utility complex. He won't be able to do it yet. It will have to be bridged by natural gas, which, by the way ,is excellent for General Electric (GE) .
Third, he will make it very difficult to put up new pipelines as environmentalist Democrats despise pipelines. That will make the scarcity value of pipelines increase. You can see the master limited partnership stocks finally starting to go up after years of decline. That's directly related to a belief that the era of pipeline buildout is over which should, theoretically, be good for the incumbent pipelines.
Now all of this is theoretical. We have no idea what Biden really has in store. But we do know this: the end of unbridled, pro-fossil fuel is over and, in an incredibly counterintuitive way, it's good news for oil and gas because without more capital to feed the beast, the beast lives, not dies because it is no longer sowing the seeds of its own destruction.