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Since the meltdown in crude oil and natural gas prices that occurred between July 2014 and January 2016, energy futures have been in a bear market. From 2016 to 2020, energy bulls found little reprieve as U.S. production expanded under the pro-drilling policies of the Trump administration. Further, the onset of COVID-19 in spring 2020 destroyed intermediate-term demand and sent global oil prices negative for the first time in history.
However, 2021 marked the dawn of a new era in U.S. energy. Beginning with a series of executive orders on Inauguration Day, President Joe Biden signaled that green energy was the way forward.
The Biden Energy Plan: Policy Rooted in Environmentalism
On the campaign trail of 2020, Biden was an outspoken critic of the Trump administration’s environmental policies. In his nine-point plan, Biden promised major reforms in the areas of carbon emissions and energy production. Here are four key tenets of the Biden environment plan that have the potential to impact the energy futures markets:
- Instituting aggressive methane pollution limits for new and existing oil and gas operations
- Banning new oil and gas leases on public lands and waters
- Permanently protecting the Arctic National Wildlife Refuge and select other areas
- Enacting legislation in 2021 designed to achieve economy-wide net-zero emissions by 2050
The first 100 days of the Biden administration saw a record-setting number of executive orders, some of which were directed at the U.S. energy industry. Here are two that fundamentally impacted the sector:
- The issuance of new oil and gas leases on public lands and waters was halted. A thorough review of existing permits for fossil fuel development was ordered.
- The March 2019 permit for the Keystone XL Pipeline was revoked.
If nothing else, the fledgling Biden administration has made a commitment to revamping the U.S. fossil fuel industry. Many of the policies are based on ideas put forth by the Green New Deal, specifically, transitioning to a net-zero carbon emission economy and extensive governmental investments in renewable energy. Due to these stated objectives, Biden’s first 100 days brought sustained bullish pressure to the pricing of energy futures.
Market Impact
The North American energy futures complex consists of contracts from two sectors: commodities and refinements. On the commodity side of the ledger, the Chicago Mercantile Exchange (CME) offers West Texas Intermediate (WTI) crude oil (CL) and Henry Hub natural gas (NG). For refinements, it offers RBOB gasoline (RB) and NY Harbor ULSD heating oil (HO) are the key listings.
If the first half of 2021 is any indication, the Biden administration’s stance on environmental issues is a bullish market driver for both energy commodities and refinements. From Jan. 4, 2021 to May 3, 2021, sectoral prices rose across the board*:
| Product | Open | Close | % Gain/Loss |
|---|---|---|---|
| June 2021 WTI crude oil | $48.40 | $64.49 | +33.24% |
| June 2021 Henry Hub natural gas | $2.666 | $2.966 | +11.25% |
| June 2021 RBOB gasoline | $1.5302 | $2.1015 | +37.33% |
| June 2021 NY Harbor ULSD | $1.4916 | $1.9519 | +30.85% |
*Pricing data taken from cmegroup.com
On the surface, the pricing data above suggests that the shift in governmental policy toward energies fostered significant bullish sentiment. Of course, energy futures have many market drivers, specifically supply and demand and the relative strength of the U.S. dollar (USD). Given these two underpinnings, it’s possible to make the case that a weak USD and a return to pre-COVID demand levels were primary factors in the January-May 2021 bull run in energies. However, when delving further into the pricing data, it becomes clear that each of the energy contracts exceeded pre-COVID multiyear highs during the Jan. 4-May 3 period**:
| Product | Periodic High | Last Traded |
|---|---|---|
| June 2021 WTI crude oil | $67.29 | July 2015 |
| June 2021 Henry Hub natural gas | $3.082 | June 2016 |
| June 2021 RBOB gasoline | $2.2170 | October 2018 |
| June 2021 NY Harbor ULSD | $2.0776 | November 2018 |
**Pricing data taken from cmegroup.com
Given this data set, it is reasonable to conclude that the new Biden environmental policies were the primary underpinnings of 2021’s energy bull market.
How Can You Profit from Energy Futures?
This year is poised to be a big one for energy futures. Governmental policy, the persistence of COVID-19, and an active USD are all potential market drivers. If you’re up to the challenge of trading crude oil, natural gas, and refinements, the endeavor can be extremely rewarding.
For more information on energies, be sure to check out the collection of educational materials available at Daniels Trading. From the e-book Introduction To Crude Oil Futures to the Market Spotlight online guide, Daniels Trading has everything you need to get started trading energies in 2021.
