So, anyway, about what this all means for the energy sector ...
Oil-price action overnight offered a good illustration of a broader theme:
That anxious yo-yo seems about right. President-elect Donald Trump's likely policies, rather than the broad fossil-fueled rhetoric of the campaign, aren't easily defined, in part because he never did so clearly.
Here are some observations in the immediate aftermath.
Oil and gas
On the face of it, Trump will be a friend to the oil business. That could actually be bearish for oil prices.
In a glutted market, rolling back regulations (read: costs) and potentially opening up federal land to drilling would create more potential barrels over time. Exploration and production companies will no doubt welcome it anyway -- growth is growth. Pipeline companies would also benefit. Refiners, meanwhile, will likely rejoice at the vastly reduced prospects of the Clean Power Plan's restrictions on greenhouse-gas emissions being extended to them.
The real wildcard is on the international scene. Trump's platform of protectionism and resetting relations with adversaries such as Russia and allies such as NATO represents a decisive break in U.S. (and Republican) policy. For that reason, it may not happen, or only in part. From a macroeconomic perspective, though, it raises the risk of reduced trade, which would have a direct and negative effect on the engines of global oil demand, emerging markets.
The bullish argument -- if it can be called that -- is that geopolitical upheaval could fuel price spikes.
What happens with Iran is an obvious example. Withdrawing from the nuclear agreement negotiated by the Obama administration could have unpredictable effects in the Middle East, leading potentially to a regional nuclear arms race or further conflict. Saudi Arabia might ostensibly cheer a more hawkish American posture toward Tehran. On the other hand, Trump's verbal support for recent legislation allowing families of victims of the Sept. 11 terrorist attacks to sue Saudi Arabia -- which overrode a presidential veto -- and his apparent willingness to work with Russia in Syria may not necessarily fill Riyadh with unalloyed confidence. That's especially true if Trump does help to boost domestic oil production.
One company to watch is Exxon Mobil Corp. It fell slightly on Wednesday, as you might expect for a big, retail-heavy stock in an unsettled market. However, it has much to gain if the next president's apparent bromance with President Vladimir Putin is more than just sweet talking (and the Ukrainian bond market certainly seemed spooked on Wednesday). Rolling back sanctions could potentially reopen Russia to Exxon -- which, as I wrote here, is critical to its long-term growth plans.
As mostly state-regulated entities, utilities are less beholden immediately to changes in Washington, D.C. Broadly, though, Trump's election should be broadly positive for them in two ways.
First, unsettled markets may stay the Federal Reserve's hand on the next increase in interest rates. If so, that could support the sector as investors stick with high dividend payers. There's not much evidence of utilities being safe havens in early Wednesday trading. But then, even the oil and gas sector is mixed, so investors may need to wait for the smoke to clear on this one.
Second, Trump's clear antipathy toward renewable energy and action to address climate change plays more to utilities' business model. True, they have also been big builders of renewable energy projects, and even the most America-first of industrial policies is unlikely to offset efficiency gains that have helped keep U.S. power demand flat-lining for a decade. But renewable energy is the one area where utilities have seen their local monopolies start to unravel. Any policy restraining those new entrants and prolonging the life of existing power plants will boost utilities' bottom lines.
Renewables and ... coal
I've lumped these two in together because they are the matter and antimatter of the battle over climate change.
Miners with big coal operations, such as Glencore International Plc in London and Cloud Peak Energy, Inc. in the U.S., surged on Wednesday. This is understandable, given how beaten-down coal miners are: U.S. demand has dropped by 30 percent since its peak in 2007.
Regulatory relief, however, is like taking a foot off coal mining's neck rather than helping it to its feet. Coal's big problem in the U.S. is cheap natural gas, another glutted fuel market that, if the next president is true to his word, will stay glutted via more fracking. Investing in a coal-plant upgrade or even starting a new one is highly risky given the potential for swings in policy four or eight years down the line.
Moreover, as fellow Gadfly Chris Bryant wrote here, while Trump certainly will act as a brake on U.S. renewable-energy development, the falling costs of solar and wind technologies offer a trump card of their own over time. They will continue to take market share elsewhere. The Paris agreement signed by President Obama could well unravel as the U.S. either formally withdraws, possibly with some delay, or just kills it with neglect. Yet other signatories, especially China and India, have their own reasons to pursue renewable energy regardless, on the grounds of cost, industrial policy, geopolitics -- think about that new and improved Middle East -- or polluted cities.
U.S. companies operating in the renewable energy business no doubt face a tough four years, at least. Even 2018's Senate contest seems unlikely to offer much relief, given most contests will involve sitting Democrats. Tesla Motors Inc. and SolarCity Corp. both fell heavily on Wednesday morning, although that may also reflect investors pulling back from two very risky stocks in these risky times. Interestingly, the merger spread between the two did not widen significantly.
The heavy lifting of maintaining progress in the sector will fall to certain states, especially those, like California, with ambitious renewable energy targets. This is necessarily a messy political process, which, all else equal, will raise the cost of capital for anyone developing new technologies. Still, even as they helped deliver the presidency to Trump on Tuesday night, Florida's voters also rejected a proposal backed heavily by utilities that would have restricted competition from solar-power providers.
And finally ...
The big unknown here is how quickly the new administration will move on any of this. Having won a clean sweep, but not a filibuster-proof majority in the Senate, the temptation could be to push hard and fast on energy policy. While it seems unlikely, repeal of such things as the investment tax credit that underpins much of renewable energy investment in the U.S. cannot be ruled out.
On the other hand, dismantling the Affordable Care Act, tax reform, and immigration are likely to be much higher on the agenda. These were much more important issues for Trump's supporters in an election where energy barely figured at the national level.
We're all about to find out.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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Liam Denning in New York at firstname.lastname@example.org
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