It’s Too Early To Draw Conclusions From Trump’s Energy Policy

It'd be easier if I were an expert in something other than energy - that'd make the forecasting of which stocks will benefit under a new Trump administration so much easier. With Obamacare's repeal about the most likely of President-elect Trump's sketchy proposals to come to pass, we'll continue to see a whopping rally in the healthcare sector and insurance. With the energy space, predicting what will be affected is proving to be much more difficult to parse.

Intuitively, you'd think Mr. Trump's energy policy would be fantastically bullish. But there was little meat on the bone of Trump energy statements, being mostly slogans and large scale promises. We'll have to mostly look at other statements from within the campaign on the economy and regulation to give us a better clue of how a Trump presidency will benefit or hurt energy stocks.

First, with coal. Trump has often professed his love of the West Virginia coal miners and his promise to help them. It is true that the Obama administration, with its strict EPA mandates on utility emissions, has accelerated the decline of coal use here in the US. The election of Trump certainly assumes that those EPA restrictions will be rolled back, if not sacked altogether and stocks like Arch Coal (ARCH), Peabody (BTUUQ) and Alliance Resource Partners (ARLP) had their best few days in years, all climbing in double digits. Still, the path of lowering carbon emissions has been now ingrained in the utility industry in long-term production goals which they are unlikely to alter much, even if the EPA removes all of their targets for the next decade. Clean coal and the sequestering of CO2 is agreed to be an inefficient, ultimately fictional technology. The question of whether coal is competitive from an economic or environmental perspective has mostly been answered, particularly while oil and gas prices have remained so low. So, while we might look for the life expectancy of US coal producers to be extended under Trump, we cannot look for a long-term resurgence in coal as a major energy source, at least here in the US. No matter who is President, coal is the fuel of the past - no one can change that. I won't deny that it's been a great trade recently, though.

On the flip side to old power coal, solar stocks have gotten hammered since Trump was elected, even in a raging stock rally. We can surely imagine the end of all, already tenuous subsidies on alternative energy from a Trump administration, and without those, much R+D and a lot of planned installations of solar production will be halted. As positively as coal stocks have reacted, solar stocks have gone just as sharply in the other direction, with First Solar (FSLR), for example, losing 20% of its value in the last two days.

On other US energy, we need to take our cues from other statements from the Trump campaign trail. He has spoken about an end to most regulations on fracking and opening up Federal lands to drilling. Of course, the low energy prices and reduced production that the US is currently experiencing are due to overproduction, so reduced regulation won't make much of an immediate difference. He's given the green light to the resumed building of the Keystone pipeline, but again, with low prices, it's not likely to be restarted, even with a US go-ahead, especially with Trump's comments on a US 'kickback' from the Canadians. He's expressed distain for the Paris environmental accords, but unless Trump destroys the EPA, he must wait three years to formally withdraw.

Probably most importantly, he's expressed his dislike of the nuclear deal with Iran, a pact he'd certainly have the support of a GOP Congress in discarding. However, while this might have a paper effect in proving Trump's 'toughness', it is unlikely to have any real effect: International sanctions that gave the US so much leverage and slowed the Iranian economy will now be almost impossible to restore and no other European who signed the treaty is likely to follow Trump out - witness the latest big Total (TOT) gas deal with the Iranians worth over $2B as proof. It might incrementally increase suspicions between the two nations, nominally drive the military positions towards Iran of the Israelis and the US together, but won't do much to curb the growth of Iranian oil.

On balance, we have a mixed-bag of signals with the incoming President. One high point for commodities in general would be the infrastructure package Mr. Trump signaled during his acceptance speech, but infrastructure spending has been the least favorite idea of a GOP-controlled Congress, especially if it were combined with the promised Trump top down tax cut, swelling US deficits grossly.

I wouldn't bet on either necessarily passing in Congress.

We are all still parsing out the likely from the possible in a new Trump administration, and while I'm doing that, won't be making many moves to my portfolio - save for a few trades in the most volatile solar and coal sectors. As for our beloved oil and gas players, I say don't do anything - yet.