Like presumably most Americans, I was hoping for a clean election. No matter who won, I wanted the American people to have their say and for the result to be unquestioned. We really need to know what the future direction is for our country. And that goes especially for embattled organizations like Marathon Oil (NYSE:MRO). Down nearly 69% year-to-date, Marathon Oil stock is in limbo because of the political uncertainty.
As you can imagine, the oil industry could use some guidance regarding what to expect over the next few years. Though you can make the case that politics is merely a dog and pony act, when it comes to energy, President-elect Joe Biden and President Donald Trump are essentially on opposite ends of the ideological spectrum.
On one hand, you have Trump, who has indicated that he’s not the biggest believer in climate change. More importantly, his administration has acted in favor of businesses over environmental and conservation interests.
In a clear example of this, the Washington Post reported late last month that the president stripped protections from Tongass National Forest, which is one of the biggest intact temperate rainforests.
On the surface, this doesn’t seem to have much to do with Marathon Oil stock. However, it’s the sentiment here that matters. By opening Tongass to logging and other forms of development, Trump signaled that conservation of natural resources isn’t on the top of his agenda. True, the economic impact of the coronavirus may have swayed his thinking. Nevertheless, this move demonstrates that Trump cares about business interests first, which benefits MRO.
What doesn’t help Marathon Oil stock, of course, is talk about getting rid of fossil fuels. That’s according to the so-called Biden Plan, which aims for net-zero emissions by 2050. Further, Trump caught Biden in an embarrassing lie about fracking. Though Biden stated that he never opposed fracking, the former vice president did in fact give comments suggesting that he would seek to phase out fossil fuels.
Naturally, this caught the attention of big oil.
The True Threat to Marathon Oil Stock
Nevertheless, the oil industry doesn’t really care about Biden’s thoughts on fracking. Don’t get me wrong – many executives have expressed concern about his views. But at the end of the day, clean energy isn’t the panacea to climate change and other environmental concerns that some people think it is.
As I mentioned in my article for NextEra Energy (NYSE:NEE), a belief exists that energy sources like wind and solar will one day replace fossil fuels. After all, years of technology has improved the efficiency of renewable energy networks. But the problem is that progress is slow. Even after many years of development, renewables make up only a fraction of global energy sources.
Mainly, the intermittent nature of green solutions like wind and solar prevent it from being a truly practical replacement for fossil fuels. Therefore, I made the argument that clean energy is a complement to what we have, not a competitor. In that case, the underlying industry of Marathon Oil stock should be reasonably safe.
However, individual names are not. That’s because no matter what happens in the political realm, investments like Marathon Oil run on one thing consistently: demand. Sure, you can have speculative interest drive up shares momentarily. But without people getting in their cars and driving or flying from one city to another, the oil market will be stuck in neutral.
Yet this doesn’t mean that politics doesn’t play a significant role in fossil fuels. Rather, Biden probably won’t get a lot accomplished when he takes the Oval Office in January. That’s because it’s looking likely that the Republicans will maintain control of the Senate. If so, Biden will have a tough time trying to crack this red wall.
After much bitter displays of partisanship, especially during a pandemic that killed almost a quarter of a million Americans, neither Republicans nor Democrats will be willing to cooperate with each other. If I’m reading this correctly, this means you can kiss stimulus goodbye. That would be terrible for the economy and by logical deduction, pose a headwind for Marathon Oil stock.
Better to Sit This Out
Just like I don’t know what’s about to happen over the next few weeks as an irate Trump contests the ballot count in key states, I’m not sure where the markets will move next. What I do know is that the consumer economy isn’t going to magically reappear in pre-pandemic form.
And that’s the thing – even if Trump somehow emerges victorious, that would only be a temporary lift for the markets. He’s got to get the economy rolling, something that worsening coronavirus cases would stymie. Therefore, I see more negativity ahead for Marathon Oil stock before this becomes a buy.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
