By Ian Salisbury
February 15, 2017

In the heat of last year’s presidential campaign, one of Donald Trump’s most prominent campaign pledges was to liberate big oil companies from burdensome regulations and bring back jobs in the energy sector. But if stock prices are any indication, he may have trouble keeping that promise.

Accusing Obama of having strangled the energy industry with onerous environmental rules, Trump offered an “America First Energy Plan” that would help the industry create “millions of jobs” and “trillions in new wealth.”

But while the stock market has surged since Trump’s surprise victory, energy has been notably sluggish. Since the beginning of the year, for instance, the S&P 500 has surged roughly 4.4%. But so far the biggest gainers have been technology and consumer stocks, having both returned more than 6% over the last six and a half weeks. By contrast, energy stocks slid 2.2% — the only sector that’s in the red.

While the environmental regulations Trump frequently harped on may indeed be a problem, the energy business is also at the mercy of market forces that are, frankly, beyond any president’s control. Among the biggest, according to a recent report from Charles Schwab: a global glut in oil tied to cheaper extraction costs and sluggish demand from formerly hot emerging markets economies, especially China. That’s in turn weighed down oil prices: While crude traded as high as $100 a barrel in mid-2014, today it is roughly half that.

Indeed, a recent move by the Organization of Petroleum Exporting Countries to boost oil prices shows just how thorny the problem has turned out to be. In November OPEC gave Trump an assist, attempting to bolster prices by agreeing to cut production by 1.2 million barrels a day — about 4% of participating nations’ output. Despite an unusually strong effort at adherence by member countries, though, the move has been only modestly successful. Spot prices for West Texas Intermediate crude jumped to $51 from $45 shortly after the announcement, but further gains have been elusive.

U.S. producers have responded by rolling out hundreds of previously shuttered rigs and creating about 3,000 new energy jobs, according to Schwab. But improved extraction methods — production costs at two of the U.S.’s biggest shale fields have fallen by 25% to 50% — also mean the U.S. has produced enough cheap oil to blunt the effect of the OPEC action more quickly than many investors expected.

“The result,” according to Schwab, “is a lower top end on oil prices, as more supply can be added at lower cost.” Of course, that’s good news for U.S. consumers, but not necessarily for energy companies — nor, for that matter, is it likely to drive big gains in energy jobs.

The cheap supplies suggest the opportunity for further gains will be limited, at least until the other side of the equation — i.e., demand — picks up. That’s another problem, says Schwab. For years, energy prices were driven by demand from emerging markets, particularly China, the world’s second-largest economy. But amid worries about a real estate bubble, China may now be trying to manage its economy toward slower growth. Throw in environmental concerns, and the upshot is “decelerating growth in demand for energy products,” Schwab writes.

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