While the broad stock market has been on a tear since the 2016 election, the energy sector has been left behind like a spurned hitchhiker. But now, it looks like energy stocks may finally get their chance to catch a ride.
Last Wednesday, President Trump introduced a sweeping proposal in his latest attempt to further boost energy production: Erase Obama-era rules on methane emissions.
Methane is the main component of natural gas, used globally to heat homes and fuel power plants. Plus, it burns cleaner than coal and oil.
Trump says the government overstepped its authority when it set limits on this greenhouse gas.
His plan would do away with Obama-era requirements to install expensive devices to monitor leaks from new wells, tanks and pipelines.
It would also throw out requirements forcing the EPA to set rules on emissions from pre-existing wells.
The American Petroleum Institute, which represents hundreds of companies, has touted a voluntary program instead. Companies would commit to more inspections and replace or retrofit current controls.
Both the API and EPA note that methane emissions have ticked down in recent years … even as oil and gas production has soared.
Trump has also moved to relax Obama-era regulations on CO2 emissions, offshore drilling and fuel economy standards that impact the oil, gas and coal industries.
Here are some of the implemented or proposed changes:
In May, the administration unveiled a plan to ease what it sees as overly strict safety procedures enacted after the 2010 Deepwater Horizon oil spill. The changes are expected to save oil and gas companies $1 billion over 10 years.
In June, the Trump administration finalized a carbon emissions statute for U.S. power plants to help the ailing coal industry.
The Trump administration’s Affordable Clean Energy (ACE) rule would give states three years to develop plans to cut emissions, mostly by encouraging more efficient coal-fired power plants.
The Paris Accord
Trump announced in 2017 he would withdraw the U.S. from the Paris agreement, which seeks to limit global warming to less than 2 degrees Celsius (3.6 degrees Fahrenheit).
Realizing that target would slash oil demand by as much as 40% by the early 2040s according to investment fund Legal and General Investment Management, seriously impacting the industry.
Trump issued executive orders early this year to restrict states from blocking interstate energy projects, including pipelines. He called for a review of rules requiring state certifications for federally approved projects.
All this comes amid surging oil and gas production that put U.S. output ahead of historical leaders Saudi Arabia and Russia. In May, the U.S. pumped a record 12.4 million barrels per day of crude, according to the U.S. Energy Information Administration (EIA).
In sum, the Trump administration has made reducing the regulatory burden on oil and gas companies a high priority.
And just this past Wednesday, the EIA reported crude inventories dropped by 10 million barrels from the previous week, as the summer driving season winds down.
This should boost prices in the short term.
And jump-start a new bull market in energy stocks … finally!
For broad exposure, consider the Energy Select Sector SPDR Fund (XLE). Or you could target a more aggressive play with the SPDR S&P Oil and Gas Exploration and Production ETF (XOP).
Alternatively, I have two picks in my Wealth Megatrends portfolio that should do quite well in the coming weeks.
To find out what they are, join me with a $9 trial subscription here.
All the best,