might start seeing more of these in America.
There are two big takeaways from President Trump’s decision to
pull out of the Paris climate accord, but there is a third that
has gotten lost in the shuffle.
And it’s extremely important to investors who are measuring the
supply and demand for oil. Before I go any further, investors
ought to monitor U.S. refiners Exxon Mobil
and VanEck Vectors Oil Services ETF
Trump’s decision could easily be considered a PR nightmare, but
it is exactly what he said he was going to do as a candidate.
And it feeds into his agenda to deregulate the economy and
increase competitiveness. Even though the media and liberals
took potshots wherever they could, Wall Street rallied,
suggesting companies embrace the decision.
Businesses support the deregulation agenda, which was the first
of the two obvious takeaways. The second pertains more directly
Fewer regulations reduce costs, and oil producers will reap
those same rewards. That caused oil prices to decline sharply
starting late in the day on Thursday right after Trump’s
announcement, and West Texas intermediate crude
fell by about 3.5% between then and early
Friday. The declines were surprising because positive news came
in just before that in the form of larger drawdowns and
However, the focus of the oil industry is on domestic
production, so far at least, and production could conceivably
increase as a result of Trump exiting the Paris accord. That’s
why oil prices fell.
The third takeaway, which seems to have gone unnoticed, is the
demand side of the energy equation. Exiting the Paris accord
opens the door for reversing car-emissions standards imposed by
President Obama. Car companies to watch are General Motors
and Fiat Chrysler
In addition, something that has not yet been considered is the
fossil-fuel mandates that kicked in eight years ago. Those
required refiners to use a significant amount of fossil fuels
to help reduce greenhouse emissions and U.S. dependency on oil.
The regulation served to significantly reduce net oil demand in
favor of fossil fuels.
In the chart below, I show oil input versus output from
refiners, excluding fossil fuels, on a weekly basis. We would
expect output to be less than input if oil were used
exclusively, as was the case prior to 2009. Output was lower by
about 1.25 million barrels per week (mbw), on average, before
However, in 2009 that turned on its head, when fossil fuels
were required, output was higher than input, and has averaged
about 0.75 mbw since then.
This regulation reduced U.S. demand by about 2 mbw, or about 8
million barrels per month. It was significant, it has helped
reduce emissions and oil dependency, but it also is a
regulation that can now be in jeopardy.
In light of the media attention surrounding the Paris accord,
the real news might come from subsequent action by the
president that significantly changes U.S. demand for oil.
Demand may be set to increase. It all depends on what he does
now that the Paris-accord decision is no longer impeding his