Crude Realities: A Look at Oil Production and Energy Returns Across Presidencies
Stocks had a mixed close yesterday as the S&P and Nasdaq were driven higher from Tesla’s electrifying earnings announcement. Manufacturing flash PMI and New Home Sales came in strong and weekly employment weak – no one is sure if that is good or bad these days.
Let it flow, let it flow, let it flow. As we slip and slide into the Presidential elections, discussions kept quiet are beginning to get airtime. Because it is Friday, I am going to give you a break from discussion of the 10-year yield, Mag-7 stocks, earnings, and yes, even Elon Musk who managed to cover his recent, supersized campaign donations with Tesla’s eye-watering gain yesterday. I feel that today is a good day to drop some nice-to-know information about the energy sector on you.
Crude oil and the energy sector have been in the news lately, mostly because of the pressure cooker-like tensions in the Middle East, principally around Iran’s oil production which may be targeted by Israel. Let’s push that aside for a moment and think about that viscous, slippery, glistening stuff. Crude oil. We will start with black gold and take a journey back to the Presidency of Democrat Bill Clinton. He had 2 terms and was followed by two-term Republican George W. Bush, who passed the baton to Democrat Barrack Obama for two terms, who was followed by Republican Donald Trump, and finally Democrat Joe Biden. Historically speaking, lots of interesting events have occurred since Clinton got the keys to the White House in 1993, but what I want to talk about is crude oil and energy during the terms of those presidents and see if the oft-spewed assertion that “energy does well under Republicans,” is truth, or fallacy?
Now, the logic behind that statement is that Republicans favor oil production and are therefore more lenient with drillers. Sounds good, right? Let’s check out the real numbers, shall we? We are going to start with the following chart. Have a look.
This chart shows US Crude oil production since Bill Clinton took office through – yesterday. Eyeballing the chart, you will notice that production fell under Clinton and Bush, rose during Obama and Trump… AND Biden. So, it goes Dem, Rep, Dem, Rep, Dem, and for crude, it was down, down, up, up, up. Your second observation should be… “I thought that it would always gain under Republicans and fall under Democrats.” However, there is no real pattern, is there? Further, wasn’t George W. Bush, the Governor of Texas at one time… as in Texas, the oil capital of the US? Ok, so statement no. 1 can be labeled as a fallacy. In fact, you will note that oil production is at its highest – EVER, under Democrat Joe Biden.
Now, I am sure that you are wondering how well the energy sector has done during those administrations. So, how well did the energy sector do? Let’s have a look at another chart. Have a glance and follow me to the close.
This chart shows the return of the S&P500 Energy Sector starting with the Clinton Presidency. Are you ready? It goes Dem, Rep, Dem, Rep, Dem, and the returns are +167%, +60%, +45%, -48%, and +141%, respectively. That leaves a net return of +351% for Democrats and +12% for Republicans! Surprising, eh? I think we can safely label the sweeping generalization that energy does better under Republican as – fallacy. Now, I am sure that you are thinking that this is not a fair comparison because Bush had the Global Financial Crisis and Trump had the Pandemic drop. But let’s go back to the first chart and contemplate crude oil supply. Remember what happens when you increase supply? That’s right the price goes down, assuming demand is constant. Therefore, it is reasonable to conclude that energy companies have a harder time making profits in times of lower crude prices, even though they may be pumping more volume. Remember the cost of pumping a barrel of crude is somewhat fixed.
I didn’t spill all this ink to debunk the notion that energy thrives under Republicans for any political reason. Remember my rules: policy not politics. I dropped this on you because if you have a thesis, as so many do, that a Trump win (and his chances are improving daily) would lead to a gain in energy, which can be profited on by investing in the sector, you might want to sharpen up your logic. Now that doesn’t mean energy will not gain. Past performance does not guarantee future performance, but it’s out there as a reference. Further to that, here is a bonus… even more history to contemplate. Exxon Mobil gained +148% during Reagan’s two terms and only +22% during George HW Bush’s. Even if we add those 12 years of gains to the more recent returns, the Dems still take it for overall aggregate gains. If we strip away all this history and go to basic economics where supply increases 🛢️🛢️🛢️⬆️ cause prices to decrease 💵💵⬇️ and lower prices eat into earnings 💲💲⬇️ … well, I am hoping you got the point 😉.
YESTERDAY’S MARKETS
NEXT UP
- Durable Goods Orders (September) are expected to have slipped by -1.0% after coming in flat in August.
- University of Michigan Sentiment (October) may be revised to 69.0 from 68.9.
- Next week we will have lots of earnings including the bulk of the remaining Mag-7. In addition, we will get more housing numbers, JOLTS Job Openings, Consumer Confidence, Q3 GDP, Personal Income, Personal Spending, PCE Deflator, and ISM PMIs. That is one heavy week, so check back in on Monday for your economic and earnings calendars.