Editor's Note: Below is a complimentary research note from our Energy Policy analyst Joe McMonigle.
While the Democrats won control of the US House of Representatives last night in the mid-term election, Republicans maintained and grew their majority in the US Senate. As a result, the big picture for energy investors has not changed. We don't see any change in direction of Trump's pro-energy policy or de-regulation agenda as the executive branch still controls the energy policy wheel.
Certainly, Democrats will have a different focus on climate policy as well as oversight and investigations that cause headaches for White House and federal agencies. But there is unlikely to be any Democrat initiatives that become law due to Senate Republicans blocking and having different priorities. Consequently, there is a very low probability of any energy legislation.
1) Cabinet Shuffle
In the administration, there is talk of a post-election cabinet shuffle in Washington. Much of the focus is on Interior Secretary Zinke potentially departing or changing seats in the cabinet. Zinke has been a strong advocate for oil and gas development on federal lands but we expect that any Trump nominee at Interior will also have a similar agenda. We do not expect any changes at DOE or EPA.
2) Some potential for gains in clean energy tax policy and energy budgets
Divided government may usher in some horse-trading on big spending bills. Tax policy and appropriations bills, especially the big year-end omnibus spending packages that we have seen in recent years, will now become even greater opportunities for horse-trading with Democrats controlling one chamber. As in years past, we expect clean energy to be the big beneficiary here.
On tax policy in particular, we think there is the potential for solar and wind tax cut extensions and other tax policy tweaks that have affected the credits. In addition, we think there is the potential for an extension of the Electric Vehicle Tax Credit or reforms like removing the 200,000 vehicle caps on individual manufacturers.
3) US election has been good for lower oil prices but we expect OPEC to pull back on the "Pump for Trump" pre-election production boost
Trump's jawboning of oil prices ahead of the election got the Saudis and other Gulf producers to increase production this fall from 10.29 million barrels per day (b/d) in July to 10.7 million b/d in October. Two weeks before the election, Saudi Energy Minister Khalid al-Falih said that OPEC was in a "produce as much as you can" mode. OPEC was feeling the Trump pressure but producers took action with the thinking that they just needed to get past the US election.
We expect to start hearing public comments from OPEC ministers this weekend at the JMMC about pulling back on the production boost announced at the June meeting. But the market will be disappointed because it is unlikely to get any specific numbers of cuts to production.
