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KEY TAKEAWAYS
- Oil stocks, that helped lead the S&P 500 to a new record high Wednesday after Donald Trump’s electoral victory, have given some of those gains.
- Initial stock optimism anticipating a friendly approach to the sector from the incoming Trump administration has faded as concerns emerge.
- Analysts believe that Trump’s policies, including tariffs, may spur oil production, but that would drive down oil prices which would in turn weigh on oil stocks.
Oil stocks are trading cautiously, giving up some of their initial gains from Wednesday in the wake of former President Trump’s election victory, as concerns grow that benefits the energy sector may reap from a friendly Trump administration could get offset by its policies.
The S&P 500 Energy Index surged 3.5% Wednesday to a one-month high, led by oil services companies such as Baker Hughes (BKR) and Halliburton, which gained 11% and 7%, respectively.
It has since given up some of those gains, and here’s why.
Why Trump’s Pro-Energy Stance May Backfire For Oil Stocks
The initial optimism in oil stocks was perhaps driven by Trump’s July campaign pledge to “drill, baby, drill.” And that came as no surprise to analysts at asset manager UBS. They noted that sectors potentially benefiting the most from deregulation—energy and financials—led Wednesday’s rally.
“That was in line with our view that these sectors would likely outperform in the event of a Trump victory,” UBS said in a research note.
The incoming Trump administration may also increase oil and gas leasing on federal land. In a research note, ING noted leases on the latter have fallen significantly during President Joe Biden’s term.
While drillers, rig suppliers and related oil industry firms could see increased activity when Trump takes office, the increased production that Trump desires could boost crude supplies and drive oil prices lower, pressuring oil stocks.
Analysts at Citi said the “Trump Presidency and potential ‘red sweep’ is likely to be marginally net bearish for oil” prices, and project average Brent crude prices for 2025 at $60 per barrel.
That’s due to policies including “trade tariffs, potentially more supply from OPEC+, and a supportive oil and gas agenda that could favorably impact the industry on the margin via reversing Biden era increases to royalties,” among others.
Brent crude futures for March 2025 were trading close to $74 early Friday.