Oil and natural gas executives should be careful what they wish for.
Big Oil has bristled under President Biden, who has talked up fossil fuels and pushed aggressively to decarbonize the U.S. economy. In contrast, Donald Trump says “drill, baby drill” and has reportedly promised to give energy lobbyists everything on their wish list if their companies support his 2024 presidential campaign.
Irony: The fossil fuel industry has fared far better in terms of profitability, stock price performance and production during the Biden presidency than it did during the Trump presidency. Some of Trump’s promised actions could actually lead to the same kind of oversupply that kept consumer prices low but devastated oil and gas finances during his presidency.
Trump reportedly recently hosted oil executives at his Mar-a-Lago estate and listened to their complaints about burdensome regulations under the Biden administration. There’s truth to this: Biden has increased the cost of drilling on federal lands, introduced new requirements to reduce methane emissions, suspended approval of new natural gas export permits and taken other steps that make fossil fuel extraction more expensive and complex.
Nevertheless, the industry hardly suffers. According to S&P Capital IQ, the energy sector’s profit margin averaged 11.3% in 2023. Wall Street forecasts for 2024 are similar. That would put the energy sector’s average profit margin for Biden’s four years at around 11%.
During Trump’s four terms in office, the profit margin in the energy sector was virtually 0. That includes the total blackout year of 2020, when the COVID pandemic brought travel to a standstill and plunged oil prices. Excluding 2020, the average energy margin was just 4.5%. In each of Trump’s four years, energy gains were lower than in each year of Biden’s presidency.
ExxonMobil (XOM), the country’s largest energy company, reflects the performance of the entire sector. In 2008 the company made a record profit, but in the 2010s net profit fell sharply. Then, in 2020, Exxon lost a staggering $22.4 billion. The oil giant rebounded and posted a new record performance in 2022 with a profit of $55.7 billion.
As in many areas of the economy, the impact of a given president’s policies on the energy sector is far less important than developments in global markets. Around 2012, during the Obama administration, the hydraulic fracturing revolution sparked a boom in American oil production. This wasn’t because of anything Obama did. The reason for this was new technologies and aggressive private sector investments.
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Over the next few years, drillers focused on gaining market share, assuming that profitability would follow. This production boom made the United States the world’s largest producer of oil and natural gas, which remains the case today. OPEC+ oil-producing countries fought back by increasing their own production, which kept oil and gasoline prices low.
However, low prices for consumers came at the expense of drill profitability. From 2015 to 2020, the U.S. energy sector performed the worst among 11 industries in terms of profitability.
The collapse in 2020, when oil prices briefly went negative, changed the industry. Since then, drilling companies and their investors have prioritized profitability and invested less in new capacity. Still, U.S. oil production has reached new record highs under Biden, largely due to high prices that make increasing production lucrative. And unlike in the 2010s, OPEC+ countries have limited their own production to keep prices high rather than flooding the market to protect market share.
Trump has reportedly promised oil executives that he will repeal many of Biden’s green energy rules and take other steps that have a positive impact on fossil fuels, such as speeding up drilling permits and allowing more production from federal lands. In return, Trump wants the industry to pump $1 billion into his 2024 presidential campaign. But Trump also wants lower energy prices for consumers, and he may find that energy companies prefer less production and higher prices to higher production and lower prices.
Biden is obviously no friend of big oil, but any policy that negatively affects fossil fuel production – which Biden is trying to do – effectively drives up prices. And when prices rise, drillers earn more. Don’t expect oil CEOs to thank Biden, but his antipathy to fossil fuels isn’t nearly as damaging as they might have you believe.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on Twitter at @rickjnewman.
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