Trump and Oil: What a Pro-Drilling Policy Means for Energy Stocks

Trump and Oil: Do the pair go hand in hand? The energy sector has always been tied to political decisions, but few have been able to shape oil markets as dramatically as Donald Trump. Trump’s energy policies support domestic energy production by removing regulatory barriers and investing in fossil fuels. But what does this mean for energy stocks, particularly those in oil and gas? More importantly, how might a return to Trump-era policies impact investors in Australia and beyond?

Let’s explore what a pro-drilling agenda means for energy stocks and what investors should watch for over the next few years.

 

The Core of Trump’s Energy Policy

Donald Trump’s energy policies centre on “energy dominance,” a phrase he used to describe his administration’s goal of securing the United States’ place as a global energy superpower. This shift moved away from previous efforts in favour of domestic fossil fuel production and removing regulatory hurdles for oil and gas companies.

Under Trump’s presidency, oil and gas drilling expanded on federal lands and offshore sites, making new reserves available for extraction. His administration loosened environmental regulations to lower compliance costs for energy companies, including easing rules on methane emissions and lifting restrictions on coal production. A key initiative was reviving large pipeline projects such as the Keystone XL pipeline, which President Biden ultimately stopped for environmental reasons. Trump also promoted domestic fossil fuel investments to increase production and decrease dependence on foreign energy sources.

These policies helped increase American oil output, allowing the country to become the world’s top producer of crude oil by 2018. The rise in supply caused global crude prices to fall, directly undercutting the power of OPEC and OPEC+, a collection of oil-producing countries that includes Saudi Arabia and Russia. Should Trump return to any position of power, we are likely to see many of these policies reinstated, providing energy investors with both opportunities and risks.

 

Impact on Oil Prices and Global Supply

Generally, a pro-drilling position leads to an increased supply of oil but not necessarily lower prices in the long term. Many factors affect the oil market, such as geopolitical tensions, global demand, OPEC’s production decisions, and the state of the broader economy.

If Trump reinstates policies that favour aggressive drilling and less oversight of the environment, oil output will likely rise, which could cause global crude prices to drop in the near term. This may create friction with OPEC+, which could decide to implement strategic cuts to stabilise the market and combat the oversupply. Global trade dynamics may still change, adjusting for major oil-exporting nations like Australia, Canada, and Middle Eastern countries, which may have to reconsider some of their export strategies as U.S. policies change.

Simultaneously, energy stocks, particularly those involved in oil exploration and production, could be in for a wild ride due to price instability. Lower oil prices might benefit consumers, such as cheaper petrol prices and lower energy costs, but they could slow investment in renewable programmes and trigger instability in oil-dependent economies.

Trump’s energy policies could again reshape the global oil landscape with his re-election, creating both economic benefits and regulatory hurdles for industries, governments, and investors globally.

 

Which Energy Stocks Could Benefit from a Pro-Drilling Policy?

Investors wanting to take advantage of a pro-oil agenda should follow companies that will benefit from higher output, loosened regulations, and infrastructure development. Here are some key players:

Upstream Oil Companies (Exploration & Production)

Upstream oil companies engage in drilling and extracting crude oil and natural gas. Under a pro-drilling administration, these companies tend to thrive, producing more oil and earning more profit.

• ExxonMobil (NYSE: XOM): ExxonMobil is one of the largest oil producers globally, with vast reserves and infrastructure that could be employed more vigorously under deregulated policies.
• Chevron (NYSE: CVX): Another energy giant, Chevron’s extensive U.S. and international operations position it to benefit from policy changes.
• Woodside Energy (ASX: WDS): Australia’s largest independent oil and gas producer, Woodside may attract heightened investment interest if global oil production grows.

Oilfield Services & Equipment Providers

Companies that provide drilling equipment, infrastructure, and maintenance services often see a surge in demand when production levels increase.

• Halliburton (NYSE: HAL): A top oilfield service company, Halliburton gains from greater drilling activity.
• Schlumberger (NYSE: SLB): One of the world’s largest oilfield service companies, Schlumberger could see increased revenue from an uptick in U.S. drilling.

Pipeline & Transportation Companies

Oil needs to be transported efficiently, and pipeline infrastructure plays a crucial role in this. Trump’s previous support for pipelines like Keystone XL suggests that companies in this space could benefit.

• Enbridge (NYSE: ENB): One of North America’s largest pipeline operators, Enbridge could see growth potential from the revival of pipeline projects.
• TransCanada (TSE: TRP): TransCanada is the company responsible for the Keystone XL pipeline, which could benefit from a Trump presidency in the form of a conservative energy policy.

 

The Flip Side: Potential Risks and Losers

Though a pro-drilling administration could benefit some energy stocks, others could struggle as well.

Renewable Energy Companies Could Struggle

Trump’s policies have long favoured fossil fuels over renewables. Stocks in the renewable energy sector could face headwinds if subsidies and incentives for wind and solar energy were to be reduced.

• Tesla (NASDAQ: TSLA): Known as an electric vehicle maker, Tesla also has energy storage and solar divisions that could take a hit.
• NextEra Energy (NYSE: NEE): As a major player in renewables, NextEra could face slower growth if fossil fuel policies dominate the administration’s focus.

Refineries and Downstream Companies

If oil prices remain volatile due to increased supply, refining margins could shrink, impacting the profitability of companies in the refining sector.

• Valero Energy (NYSE: VLO): A large refining player, Valero’s earnings could be squeezed if oil price fluctuations reduce refining margins.

 

Environmental Concerns and ESG Investments

With an increased emphasis on fossil fuel production, the environmental question might arise, resulting in strong regulatory pushback from states, investors, and international bodies. ESG (Environmental, Social, and Governance) funds, which favour sustainable investments, may move away from oil-heavy portfolios. This could eventually hurt the stock prices of major producers.

 

How Australian Energy Stocks Could Be Affected

Australia’s energy sector, dominated by players like Woodside Energy, Santos, and Beach Energy, is closely linked to global oil prices and trends. If Trump’s policies lead to higher U.S. oil production alongside lower global oil prices, several challenges could arise for Australian energy companies. Stronger competition from U.S. producers will put downward pressure on export revenues, especially for key Asian markets. Low global prices would also make it harder for Australian firms to remain profitable, given their relatively higher production costs compared to U.S. shale producers.

In light of the shifting global landscape, the Australian government may also reconsider its energy strategy. Changes in regulatory policies, tax breaks, or subsidies could affect domestic energy firms, impacting their long-term growth trajectory. However, a pro-fossil fuel agenda in the U.S. could also open up new investment opportunities. Global interest in oil and gas may free up capital for Australia’s offshore oil fields and LNG projects, benefiting companies with expansion plans or strong international ties.

 

Investment Strategies in a Pro-Drilling Era

If Trump reintroduces pro-drilling policies, investors will need to reassess their strategies to navigate the evolving energy market. While oil and gas stocks may experience gains, market volatility will remain a key factor. Diversified portfolios that include both traditional and renewable energy assets may help hedge risk. Undervalued companies with strong growth prospects could be an attractive investment opportunity under looser regulations.

Geopolitical factors will continue to be major drivers of oil price volatility. While an uptick in U.S. production might depress prices, various political tensions in the Middle East, Russian energy policies, and OPEC+ production decisions could effectively counter this effect. Investors must stay vigilant and monitor such developments, as these factors will greatly influence their investments. Furthermore, ASX-listed energy stocks will be significantly affected by the government’s responses to shifting energy trends worldwide. Any reforms, fresh laws, or changes in tax structures would have substantial ramifications for the operating profitability of domestic companies and their competitiveness in global markets.

 

Trump and Oil Go Together!

Trump’s potential return to office and his pro-drilling policies could strongly impact global energy markets. While U.S. oil producers may benefit from increased drilling activity and policy rollbacks, other effects will extend to Australian energy stocks, renewables, and global oil prices.

Investors will need to track these changes closely and adjust their strategies to capitalise on these opportunities. Whether energy stocks surge or face instability from oil price fluctuations, the energy market will continue to be a contest for competing interests, requiring vigilant attention and strategic foresight.

 

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FAQs

• How did Trump’s previous energy policies impact oil prices?

  Under Trump’s policies, U.S. oil production increased significantly, which helped keep global prices lower. However, prices were also frequently influenced by geopolitical tensions and OPEC’s reactions.

• What sectors benefit most from pro-drilling policies?

  Oil companies that operate upstream, oilfield service companies, and pipeline infrastructure companies tend to benefit from increased drilling activity and fewer regulations.

• How could Australian energy stocks be affected by U.S. drilling policies?

  Australian oil producers could face increased competition from U.S. firms, impacting export revenues and market prices. However, higher global energy demand could also present new opportunities.

• Should investors focus on oil or renewable energy stocks under a pro-drilling policy?

  Oil stocks may offer short-term benefits, but renewables are a long-term growth sector. If you invest in oil, consider a diversified approach to balance risk and reward.

• Could Trump’s policies impact global carbon emissions?

  Yes, increased fossil fuel production could lead to higher emissions, potentially delaying the shift to cleaner energy sources. This might prompt regulatory backlash from other countries.