Election implications - Energy sector

CIBC Private Wealth US

Patricia Bannan is a managing director and Head of Equities for CIBC Private Wealth Management. In this role, she oversees the firm’s proprietary equity strategies.

Lance Marr is a senior investment analyst providing research and analytical support for the CIBC Energy Infrastructure strategy and serves as team lead on the firm’s Clean Energy strategy.

The energy sector arguably has the most at stake with a change in the political landscape. As we weigh the scenarios, the status quo appears likely in the event of a Trump win, with a benign regulatory environment, federal support for new energy infrastructure projects and no deals with Iran or Venezuela to bring more oil production on the market. While broadly positive, countering this are expectations for limited production growth as investors demand capital discipline in this low-price environment and state and local governments resisting advancement of new infrastructure projects.

When we consider the scenario for the energy sector under a Biden victory, the main focus will be on incentivizing clean energy. The most notable proposal is a $2 trillion climate plan that includes spending on infrastructure and incentives that would serve to accelerate the transition to clean energy. In a Democratic sweep, no doubt the odds of this plan coming to fruition increase. Obvious beneficiaries are companies exposed to renewable and clean energy at the expense of traditional energy companies. With that said, we don’t expect an outright assault on traditional energy companies. Instead, increased regulation on many facets of exploration and production are more likely than something more onerous, like a fracking ban. The result would be less restrictive on production, but with higher costs associated with that production. Furthermore, we may see restrictions on new permits in federally controlled areas, which could shift production to private lands.

Other areas of action would be a scrutiny of energy infrastructure projects under a Biden administration. A Biden team would likely also work to ease sanctions with Iran, allowing more oil on the market.