Less Regulation in Energy Under Trump Could Boost U.S. Industry

The domestic energy industry should thrive under a Donald Trump administration as regulations to produce oil and natural gas would be loosened, energy experts and economists predicted.

"A Trump presidency, along with a Republican majority in the Congress should be good news for the domestic energy industry," said Bernard Weinstein, a business economist at Southern Methodist University's Cox School of Business in Dallas. "After eight years of 'regulatory overreach' designed to kill the coal industry and make it more expensive to produce U.S. oil and natural gas, we can expect more accommodating policies from the incoming president who understands the links between energy and economic growth."

The energy industry should benefit under his presidency because the issues hindering both the Keystone Pipeline and the Dakota Access oil pipeline could be resolved and more supply could come onto the market, said Bruce Bullock, director of the Maguire Energy Institute in Dallas. The likelihood of the new administration increasing drilling in other areas is also high.

"Ultimately, additional drilling will depend on the price of oil," he said.

While other experts have said that additional drilling would only decrease the price of oil, Bullock said the offsetting factors will balance it out. Trump's plan to lower the corporate tax rate, spur economic growth and revitalize manufacturing "should add to GDP growth which could stabilize demand growth of both petroleum and natural gas," he said. "Additionally, a more reasonable regulatory environment could further add to GDP growth, also benefiting the energy industry."

Under a Trump administration, more drilling could occur, which would only put further downward pressure on crude oil prices, said Peter Borish, chief strategist with Quad Group, a New York-based financial firm. The decline in demand of U.S. oil products will dampen prices.

"This is not good for our energy policy," he said. "The logical conclusion is if we raise trade barriers, prices will feel the pressure. We've already gone through a period of expansionary export policy. This is a very profound case of being careful of what you ask for."

Oil prices could rise higher over the next 12 months unless OPEC is "unable to reach an agreement in regard to its production freeze agreement," said Michael Berger, a former Raymond James energy analyst and founder of Technical420, a Miami-based company that conducts research on cannabis stocks.

"If an agreement is not reached, the global oil market will face another year of relentless supply growth as producers around the globe set to pump more crude," he said. "Although the election did not provide the result expected by the market, stocks have responded favorably."

A weakening of the U.S. dollar could help oil prices because for every 1% the dollar drops, oil gains almost 5%, said Jodie Gunzberg, global head of commodities and real assets at New York-based S&P Dow Jones Indices.

"If there is increased infrastructure spending, that may further push oil and since it's economically sensitive," she said.

Inflation may become a concern because unleaded gasoline and all grains perform better under Republicans, Gunzberg said.

"A weaker dollar improves competitiveness of U.S. exports," she said. "Low oil prices have brought down gas prices enough so that taxes have been added and subsidies cut, so even if oil prices fall again, there is likely limited benefits for consumers."

Since Trump did not provide details of an energy plan during his campaign, it appears he is pro-Keystone XL, pro renewable fuel standard and anti-NAFTA, said Patrick DeHaan, a senior petroleum analyst for GasBuddy.com, a Boston-based provider of retail fuel pricing information and data.

"There's a lot up in the air as we seek to understand what Trump's administration would look like," he said. "Perhaps just as important is we're unsure of how he will handle foreign policy and what advisors and his cabinet might look like. Overall, it's more of the unknown."

Since Trump appears to be anti-EPA and has expressed skepticism about climate change, these beliefs could impact gasoline requirements.

While he is pro-drilling, which could benefit U.S. drillers, Trump has also suggested he would raid the Middle East for oil, said DeHaan.

"Trump is hard to figure out, especially due to the varying tones he took while campaigning and we'll eagerly be waiting to see the people he surrounds himself with, in order to understand where we go from here," he said.

Although it appears that Trump would loosen the reigns on regulation, "in the current price environment, I don't see a lot of new drilling," said Patrick Morris, CEO of New York-based HAGIN Investment Management.

"I think we are fracking down a deep well - pun intended," he said. "We have no guidance from the president-elect on energy policy."

An import ban is also a "terrible idea because the U.S. oil industry and its refineries are not on the same page in terms of feedstock, so we import," Morris said. 

The new administration is unlikely to rollback all energy and environmental legislation and regulation, but instead will rely more on technology and competition, "as opposed to regulatory fiat, to achieve the nation's environmental goals," Weinstein said.

The political parties of U.S. presidents do not impact oil prices even though public perception has often leaned toward the belief that Republican presidents are beneficial for the commodity. Neither Democrat or Republican presidents help boost the price of crude oil and the belief remains a fallacy.

Oil prices under the Republican Presidents returned 2.1% versus 1.4% under the Democratic Presidents on average, wrote Gunzberg in a blog post.

"The Democratic Presidents represented both the best and the worst oil performance with oil performance during Republican Presidencies falling in the middle," she said.

The premise that Republican presidents can boost oil prices has been proven wrong many times as they have no control over supply, weather and geopolitical issues. During Republican President George W. Bush's tenure, oil generated an annualized return of 4.5%. From 2001, when started his presidency, the commodity returned 388% or 23% annualized until oil's peak in July 2008. The rise in prices was met by a 71% decide which occurred during the six months of his presidency.

Believers of this theory hoped that another party leading this presidency would help oil reverse its losses. U.S. Democratic President Obama faced oil hitting a bottom soon after he was inaugurated into office, but then oil rebounded and gained 179% or 56.3% annualized through April 2011. The 72% decline in oil prices is "slightly more than it did in its drawdown under the prior president," Gunzberg wrote.

Some of the factors which impact oil prices include the U.S. government's regulation of supply, the strength of the U.S. dollar and if OPEC producers will lower production, she said.

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