A new boost for oil companies and the energy sector. Which companies will benefit from Trump’s victory

Fossil Fuel Company Stocks Rise Despite Falling Oil Prices

Stocks of fossil fuel companies have risen, despite a decline in oil prices over the past week, as investors began to assess the likely impact of Donald Trump’s electoral victory on the energy industry.

The impact of the new president’s platform may be controversial.

While oil company stocks typically follow the direction of crude oil prices, the energy sector saw a 3.6% increase following election day, slightly outpacing the S&P 500’s growth. At the same time, West Texas Intermediate and Brent oil prices fell by 5.3% and 4.7%, respectively.

“There’s a balance in the industry where you want regulations that encourage development, but not an increase in supply that punishes prices,” said Andrew Ditmar, a lead analyst at Enverus Energy Intelligence.

Conflicting signals

The crude oil futures market and stocks of oil and gas companies seem to interpret Trump’s victory differently. On one hand, the Republican promises to increase production signal a drop in prices at a time when the crude oil market is already facing an oversupply next year. Strict tariffs on China could also slow down the world’s second-largest economy, potentially reducing oil demand.

On the other hand, energy sector investors are celebrating the prospect of fewer regulations, as the Republican Party is on track to win a majority in the House of Representatives and control both Congress and the White House.

The American Petroleum Institute on Tuesday released a document addressed to Trump, urging his administration to promote the export of liquefied natural gas (LNG), allow more land and offshore drilling concessions, and reform the permitting process for pipeline construction.

The SPDR S&P Oil and Gas Production ETF has risen nearly 6% since Trump’s victory.

More pipelines, LNG exports

Trump’s second administration is likely to have the greatest impact by permitting more interstate pipelines and lifting the moratorium on new LNG exports, said Andrew Ditmar.

“It’s also possible that lease sales in the Gulf of Mexico and federal land will increase,” the analyst added.

Biden’s administration proposed the fewest drilling leases in U.S. history, according to a plan that allows companies to drill only in three new zones exclusively in the Gulf of Mexico until 2029, according to the Department of the Interior.

Offshore companies like Tidewater, Transocean, and Noble Corporation are potential winners under increased Gulf activity led by Trump, according to James West, an analyst at Evercore ISI.

Oil and gas service companies

According to West, oil and gas service companies will also be beneficiaries under a Trump administration.

Lower taxes, fewer environmental regulations

The oil and gas sector will also benefit from relaxed environmental regulations. Trump has selected former Republican congressman Lee Zeldin from New York to head the Environmental Protection Agency (EPA).

Zeldin stated on Fox News on Monday that the EPA under Trump would roll back “left-wing” regulations. One rule that could be removed is the methane emissions fee for oil and gas companies, which the Biden administration introduced on Tuesday.

“Companies that have been burdened by regulations under the Inflation Reduction Act related to methane emissions have performed well, likely due to the expectation that these rules might be enforced less strictly or even canceled, given Congressional control,” said Ditmar.

Energy sector investors also expect the sector to benefit from the preservation of current corporate tax rates or efforts to further reduce them under Trump’s administration, the analyst added.

Barriers from oversupply

A more concerning factor is that the oil and gas production boom under Trump could lower crude oil prices and represent a barrier to the industry.

The U.S. has been the largest producer of fossil fuels in the world since 2018, surpassing even Saudi Arabia and Russia, according to the Department of Energy.

Perhaps that’s why energy analysts and executives don’t see the promised production boom materializing. Record amounts of oil and gas were extracted during the Biden administration, and Trump’s potential for increasing production as president is also limited, according to analysts.

Only about 25% of oil production and 10% of natural gas production occurs on federal lands and waters, according to an August report from Morgan Stanley.

“Under the Trump administration, regulations will be more relaxed, both in terms of permitting and adding the necessary infrastructure,” but this is unlikely to be a “game changer” under current circumstances, said Wells Fargo analyst Roger Reed to CNBC before the election.

ExxonMobil CEO Darren Woods said that production levels at the nation’s largest oil and gas producer would not change in response to Trump’s victory. Exxon’s investments in production are based on the returns from shareholder projects, not on the political changes brought on by the election, he added.

Whatever the energy policy from the White House and Capitol Hill, there is broad agreement that there are few negatives for the industry.

“He’s for business and deregulation,” said West of Trump.