Donald Trump, who was president four years ago, told voters that Joe Biden, who was running against him, was going to destroy the oil industry. Biden talked up his plan to get the U.S. off of oil, but he said that fossil fuels would not be banned or moved away from for “a long time.”
When it comes to U.S. stocks, energy has been the best-performing sector during Biden’s time in office. The two will face off in the first debate of the campaign season next week. It has given returns equal to those of the tech, industrial, and financial sectors put together.
Even though it’s only the end of May, the Energy Select SPDR ETF has grown about 143% since Biden took office in January 2021. Three times as much as the S&P 500 in the same amount of time.
A new study from Morningstar shows that the second-placed technology sector doesn’t even come close, with a total return of 67%.
The stocks have gone up a lot because of two main things: the coronavirus pandemic and OPEC+’s response to it; and Western sanctions on Russian energy after its invasion of Ukraine, says Bob Yawger, director of energy futures at Mizuho.
The coronavirus pandemic made people less likely to travel around the world, which was bad for energy stocks. In April 2020, oil futures went into negative territory. By the time Biden took office in January 2021, the Delta variant was responsible for some of the most deaths during the pandemic.
According to Yawger, value traders and investors will always look for the cheapest thing on the market. “Oil had a pretty good story,” he said.
People in the Organization of the Petroleum Exporting Countries (OPEC) and their allies took action in 2020 to cut oil production by almost 10 million barrels a day. This is partly to blame. They both promised earlier this year to increase production as part of a price war for oil market share.
But things changed when futures traded for -$37.25 a barrel in April 2020, Yawger said.
As of now, OPEC+ has continued to cut production to keep oil prices from falling below $60 a barrel. Long-term cuts have taken away between 4 and 5 million barrels of oil a day from the world market.
“Many people said oil would never be $50 a barrel again, but thanks to OPEC, it didn’t take long to get back to that level,” he said.
In a roundabout way, this has helped integrated U.S. oil companies like Exxon Mobil and Chevron, upstream companies like EOG Resources and ConocoPhillips, and oilfield services companies like Schlumberger, which is now called SLB. These are the five biggest companies in the Energy Select SPDR ETF.
The invasion of Ukraine by Russia in early 2022 was good for U.S. refiners like Marathon Petroleum and Valero. As a result of the pandemic, less profitable plants had to close, which slowed down the flow of oil around the world.
“The political situation put a $10 to $15 bid in the market that hasn’t really gone away,” Yawger said. “Oil prices would probably drop by that much if Russia and Ukraine agreed to a peace deal tomorrow.”
Concerns about oil and gas that came up in the last election, like how to regulate leases and drilling on federal lands, are becoming less important as November approaches. This is because the industry has changed and is now producing record amounts of oil and gas in the U.S., according to a study by JP Morgan.
But the president doesn’t have much control over the long-term direction of the sector. During this decade, the world is expected to use a record amount of oil and gas, even though climate change is pushing governments to switch to renewable energy. No matter who becomes president, the transition is likely to be hard.
