US Election 2020: America’s Energy Duality

October 21, 2020

This article is part of the US Election series brought to you by POEMS. #USElection2020.

World’s No.1 Oil Producer…

Factsheets


When we think about oil, most of us automatically associate it with the wealthy, oil-rich Middle Eastern countries. Surprisingly, the world’s top oil producer is leading Saudi Arabia by more than 2 million barrels per day and that country is none other than the US. Oil from the US accounts for 19% of global production. The US also happens to be the world’s top consumer of oil. It has been the world’s top oil producer since 2017. Thanks to Trump’s pro-drilling stance on oil, oil production in the US has been increasing steadily over the years, especially between 2018 and 2019, when growth was more than 9% [2].


… And World’s No. 2 Clean Energy Producer

Production of electricity through green technology in 2018: US is the world’s No. 2 clean-energy producer

Factsheets


Despite America’s pro-oil disposition, she is also the world’s second clean energy producer. This isn’t that unexpected, considering that the US invested over US$55bn in clean energy in 2019, second only to China with US$83.4bn. A scaling back of federal taxes this year has allowed wind and solar companies to increase their investments and operations in order to qualify for the tax credits. [4]

Selected countries’ investments in clean energy globally in 2019 (in billion U.S. dollars)

Factsheets


Whatever the outcome of the much anticipated November 2020 elections, the impact on both sectors will likely be adverse. As we know, opportunities can come from times of volatility. Hence, investors have been keeping themselves abreast of the latest election news to ensure that their portfolios are built with the latest information on hand.


Let’s Follow the Money

The 2020 presidential elections pit Trump (pro-oil) against Biden (pro-green) and investors are placing their bets on one or the other – or both – to reap profits. So, the burning question is, which counters should they look at to ride the tide?

Well, a good way to find out which companies would benefit the most is to look at who has made the most contributions to Trump’s and Biden’s campaigns.

The biggest donors in this election are major oil and shale firms such as Koch Industries (US$9.8mn), Chevron (US$4.7mn) and Midland Energy (US$2mn). Even the bulk of the US$6.7mn money from the top individual donors was given to the Republicans in Congress [6]. The likely reason these companies are willing to donate that much to Trump’s campaign is because they believe that their financial gains under Trump will outweigh their donations.

Conversely, climate-change activists and clean-energy industries have hosted some of Biden’s biggest fundraising events. The Clean Energy for Biden network, led by people in renewable-energy industries, has raised US$550,000 for Biden [7]. Many of Biden’s environmental backers are going to unprecedented lengths to make him the next president, on hopes that he would bring about much needed policies to support climate change.


A Closer Look at Policies: Trump vs Biden

Topic Biden Trump
Auto emission rules Plans to strengthen auto emission standards and has proposed incentives for car manufacturers to develop zero emission cars Weakened the Obama administration’s regulations in March
Climate Plans Targets to achieve 100% clean electricity by 2035 Publicly rejected climate change scientific reports and has rescinded some of Obama’s regulations to combat global warming
Coal Propose to replace coal jobs with alternatives by investing in job creation in the clean-energy sector [8] Pro-coal and pro-fracking, though has failed to stop plant shutdowns
Oil Does not support a nationwide ban on fracking. Has provided the oil industry with deregulations and tax cuts to boost production

Source: Reuters [9]

Pro-Trump Counters

Counter Background Information
Chevron Corporation
NYSE: CVX
Chevron has a hand in every aspect of the oil and gas industry, from refining to manufacturing and sales. Headquartered in California, it is one of the world’s largest companies, with a market valuation of US$136bn.
ConocoPhillips
NYSE: COP
ConocoPhillips produces hydrocarbons and is based in Texas. Produces mainly petroleum and natural gases. Ranked the 14th biggest global corporate polluter by The Guardian in 2019.
ExxonMobil
NYSE: XOM
One of the largest American oil and gas multinationals headquartered in Texas. Texas is home to the US shale industry and employs about a quarter of the workers in the oil industry [10].
Phillips 66
NYSE: PSX
Ranked 23rd on Fortune 500, this American oil major is also based in Texas. It mainly produces natural gas liquids and petrochemicals.
Shell
AMS: RDSA
As of 2016, Shell was the world’s largest producer of liquefied natural gas. Incorporated in England, it is the third-largest oil and gas company measured by revenue.


Trump has massively reduced taxes and regulations since taking over from Obama. At the same time, he has removed or reduced environmental-protection regulations that once forced oil companies to back down in oil prospecting in favour of environmental considerations. Trump has also publicly pledged to salvage the oil and gas industry after it was hard-hit by the COVID-19 outbreak [11]. Without Trump’s support, most of these companies would have incurred losses due to their high cost structures. These oil majors have funded much of Trump’s campaign as his re-election is deemed pivotal to their sustainability and profitability.


Pro-Biden Counters

Counter Background Information
Brookfield Renewable Partners
TSE: BEP.UN
Brookfield Renewable Partners operates one of the world’s largest publicly-traded renewable power platforms across the globe. It owns over 200 hydroelectric plants, 100 wind farms and over 550 solar facilities.
First Solar
NASDAQ: FSLR
First Solar is an American manufacturer of solar panels and is considered the second-largest global producer of solar panel modules. It is one of the fastest-growing and most innovative technology companies in America.
Fuelcell Energy
NASDAQ: FCEL
The biggest publicly traded fuel cell manufacturer in the US that designs, manufactures and operates fuel cell power plants. Fuelcell also operates the biggest fuel cell park in the US and caters to both commercial and industrial demand.


While Biden has announced plans to transition to 100% clean energy, he has simultaneously shown an unwillingness to ban shale oil production. It is most likely that he will restrict the oil and gas industry with regulations. Biden has openly expressed his desire to fight climate change. He plans to invest in new technologies and introduce tax incentives for cleaner energy [12].


Gain exposure with ETFs & CFDs on POEMS

Oil and gas companies seem to think their fate depends on Trump while clean-energy companies are allying themselves with Biden.

Which candidate do you think will prevail?

If you have a calculated guess on who could win but are still unsure of the counters to buy, why not gain exposure to the sector via ETFs or CFDs?

Table 1 illustrates the stocks and CFDs relevant to the sector that POEMS offers.

Factsheets

Source: POEMS

As the US presidential election draws near, market volatility is expected to increase. Traders can consider trading CFDs to hedge their portfolio positions.

Contrary to popular opinion, Contracts for Differences (CFDs) are not just for technical traders. Long-term investors can utilise CFDs to hedge their positions against unforeseen events and uncertainties. When one foresees rising uncertainty and volatility in the market, one can enter into a CFD contract to hedge his or her position.

CFD World Indices and Commodities are ideal hedging tools for equities. This is due to their cost effectiveness and correlations.

You can use CFDs as a hedge in the following two possible scenarios:

1) When the price of your existing positions has already moved / is moving against you.

2) When you anticipate future gains in your existing positions to be marginal due to increasingly negative market sentiment.

For details on how to use CFDs for hedging, check out our hedging example at the bottom of this article.

Before one hedges, it is important to know which assets to use to hedge. Assets that have a positive correlation to your positions are used as an opposing hedge (Short). Assets with a negative correlation to your positions are used as a same-side hedge (Long). Do note that it is not possible to perform a perfect hedge due to correlational factors and positional sizes.

As much as oil and gas companies are betting their profitability on Trump, clean energy players are casting their lot with Biden.

Which position do you take? Head over to our award-winning POEMS 2.0 platform to place your trades today!

And stay tuned for our next US Presidential Election series covering yet another sector! #USElection2020

Reference:
1. https://knoema.com/atlas/topics/Energy/Oil/Production-of-crude-oil
2. https://www.ig.com/en/trading-strategies/world-s-biggest-oil-producers-200722
3. https://www.irena.org/Statistics/View-Data-by-Topic/Capacity-and-Generation/Country-Rankings
4. https://www.bloomberg.com/news/articles/2020-01-16/even-under-trump-u-s-renewable-investment-hits-a-record
5. https://www.statista.com/statistics/799098/global-clean-energy-investment-by-country
6. https://qz.com/1888848/oil-companies-are-backing-trumps-re-election/
7. https://www.eenews.net/stories/1063536281
8. https://joebiden.com/climate-labor-fact-sheet/
9. https://graphics.reuters.com/USA-ELECTION/POLICY/ygdpzwarjvw/
10. https://www.fool.com/investing/2020/08/12/3-stocks-to-buy-if-you-think-trump-wins-election/
11. https://www.theguardian.com/us-news/2020/aug/09/big-oil-trump-campaign-donations-fossil-fuel-industry
12. https://www.icis.com/explore/resources/2020-us-elections/

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About the author

Athena
Dealer

Athena graduated from the National University of Singapore with a Bachelor’s Degree in Economics. She is an ex-MOE teacher who decided to pursue her passion in finance and economics after years of service. Combining her working experience in UOB as a banker and current position as a dealer managing over 50,000 accounts in Phillip Securities, she firmly believes in making informed decisions to ride the tides of the market. In her free time, she enjoys reading The Economist to review the latest global outlook.