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Are Joe Biden’s Green Energy Policies Bullish or Bearish for Energy Futures?

June 17, 2021 by Daniels Trading| Tips & Strategies

Daniels Trading is nonpartisan and does not endorse political candidates. The purpose of this blog post is to provide objective, unbiased information on what we believe could happen in the markets. The content is not intended to convey a preference or state a position in support of any candidate, and the sentiments expressed do not necessarily reflect the viewpoints of our team members.

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.

Our blog has critical trading information perfect for new and experienced traders, hedgers, producers, and investors.

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  • The March 2019 permit for the Keystone XL Pipeline was revoked.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.

What Is Sustainable Investing and Why Does it Matter?

Filed Under: Tips & Strategies

About Daniels Trading

Daniels Trading is division of StoneX Financial Inc. located in the heart of Chicago’s financial district. Established by renowned commodity trader Andy Daniels in 1995, Daniels Trading was built on a culture of trust committed to a mission of Independence, Objectivity and Reliability.

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