Four years ago, former President Donald Trump warned voters that Joe Biden would destroy the oil industry. Well, four years on from that prediction, some unlikely news has come out. Here are the details.
The Surprising Success of Energy Stocks
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According to the data, under Biden’s administration energy has turned out to be the best-performing U.S. sector, outshining even technology stocks, the finance sector, and the industrial sector – combined. If that’s a surprise to you, you’re not alone.
Record-Breaking Returns
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Since Biden took office in January 2021 through the end of May 2024, the Energy Select SPDR ETF – an investment fund that tracks the performance of major U.S. energy companies – has skyrocketed by 143%.
Outperforming the Market
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It’s blown far past the S&P 500’s total return in the same period, almost tripling its performance. Even the technology sector, which holds second place in total returns, only managed a 67% return.
Factors Behind the Surge
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But what’s behind this unexpected surge? The short answer is the Ukraine war, the pandemic, and how OPEC+ responded.
Understanding OPEC+
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If you’re unfamiliar with it, OPEC+ (the Organization of the Petroleum Exporting Countries) is a coalition of countries led by Saudi Arabia and Russia that work together to manage oil production and stabilize prices. They coordinate efforts to adjust the amount of oil they produce to influence global oil prices and market conditions.
The COVID-19 Impact
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When COVID-19 hit, travel demand collapsed, sending oil prices tumbling in April 2020. By Biden’s 2021 inauguration, the disease was wreaking havoc as death rates skyrocketed.
The Value Trader’s Perspective
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“If you’re a value trader or investor, you’re going to try and buy the cheapest thing out there, and oil had a pretty good story,” said Bob Yawger, director of energy futures at Mizuho.
OPEC+ Production Cuts
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OPEC+ slashed oil production by around 70 million barrels a week to prop up prices after oil futures hit -$37.25 a barrel. This massive cutback helped prices bounce back.
Maintaining Oil Prices
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They’ve kept adjusting production to keep oil prices above $60 a barrel, pulling around 35 million barrels of oil a week off the global market.
The Unexpected Rebound
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“There were a lot of people who said we’d never see $50 a barrel of oil again, but because of OPEC, it didn’t take long to bounce back,” Yawger pointed out.
U.S. Oil Giants Benefit
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This strategy has benefited U.S. oil giants like Exxon Mobil and Chevron, as well as oilfield services firms such as Schlumberger (now SLB).
A Big Windfall
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These companies are the big players in the Energy Select SPDR ETF and have benefited massively from these market dynamics.
The Ukraine Invasion’s Impact
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Then there’s Russia’s invasion of Ukraine. This sent ripples through the global oil supply, massively helping out U.S. refiners like Marathon Petroleum and Valero. With less global refining capacity due to the pandemic shuttering plants, prices stayed high.
A Geopolitical Premium
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“The geopolitical situation put a $10 to $15 bid in the market that’s never really evaporated, though oil prices would likely fall by that much if Ukraine and Russia agreed on a peace deal tomorrow,” Yawger added.
Regulatory Concerns Fade
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As we head into another election, worries about Biden’s killing oil and gas have essentially disappeared. The industry has adapted and is now pumping out more oil and gas than ever before.
Industry Resilience
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A recent analysis by JP Morgan has noted the industry’s strength, showing that the sector has thrived despite regulatory hurdles.
Beyond Presidential Politics
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Realistically, the energy sector’s future isn’t just about who’s in the White House. Experts predict that we will see record-high numbers for global oil and gas usage this decade, even as we push for a shift to renewable energy. This transition is going to be tough – no matter who’s president.
The Energy Sector’s Triumph
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The energy sector is thriving and has delivered amazing returns in the past few years. It’s proved that it can hold steady in the face of global challenges.
The Perfect Storm
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The combined impact of OPEC+ cuts, pandemic shifts, and geopolitical conflicts has made energy stocks the wildcard of the stock market. The sector’s continued good performance will be key to helping the government find a balance between fossil fuels and renewables as we move on.
Oil Dumping Scandal Rocks Ships Heading to New Orleans
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Two shipping companies have been fined after knowingly hiding a large oil spill in the Atlantic Ocean. Oil Dumping Scandal Rocks Ships Heading to New Orleans
20 Eye-Opening Realities Facing Retiring Baby Boomers
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As Baby Boomers approach retirement, the promise of leisure and security often seems unattainable. This generation faces unique challenges that could redefine retirement. Here’s a stark look at the realities shaping their outlook. 20 Eye-Opening Realities Facing Retiring Baby Boomers
Retail Apocalypse: Massive Closures Sweep Across U.S. Brands
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Stores across the U.S. are closing at unprecedented levels, according to new research from advisory firm Coresight Research. Read on for more information about the impact this could have on you and your communities. Retail Apocalypse: Massive Closures Sweep Across U.S. Brands
The post Trump Said Biden Would Kill The Oil Industry – Has He? first appeared on EcoHugo.
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