Heading into the 2020 election, incumbent President Donald Trump and former Vice President Joe Biden came in with very different policy plans when it came to energy. And that disparity has had companies like BP (NYSE:BP) awaiting the results with bated breath. As a vertically integrated organization operating in every area of the oil and gas industry, the election could have a meaningful impact on BP stock.
Of course, this being 2020, the results couldn’t be tabulated on election night. From where I stand, it seems that President Trump will probably win again, despite the abysmal odds. And the Democrats really have to take responsibility for their own incompetence.
No matter who wins, they were running against a blisteringly unpopular president, yet failed to seal the deal, with the race essentially a toss-up between the candidates. I wouldn’t be surprised if this was the end of the Democrats. On so many levels, it simply shouldn’t have been this close.
But leaving aside the election, what really matters for BP stock is how the company, and the wider oil industry, will lay the foundation for a recovery. BP hasn’t exactly reassured stakeholders on that end. In its third-quarter earnings call, the company reported its fifth consecutive earnings loss, per Wall Street Journal.
That follows one of the worst second quarters ever for the oil industry, which left BP halving its dividend and slashing jobs. If there was some positive news, it’s that oil prices stabilized around the $40 level after precipitous drops in the early days of the novel coronavirus outbreak in the U.S. and other nations. However, as the WSJ notes, “prices remain around a third below where they were in the same period a year earlier.”
Now, it’s all about where to go from here. If you’re on the conservative side (portfolio-wise, not about politics), you’ll probably want to remain on the sidelines.
BP Stock Continues to Be Dogged by Demand
One of the key highlights (well, I suppose it’s more of a lowlight) is refining margins, which remained weak. WSJ contributor Sarah McFarlane wrote the following:
“Refining and trading sometimes offer some relief to major oil companies during times of lower energy prices but recently even these areas haven’t been as profitable. Refining margins have in the past risen when oil prices have fallen, but Covid-19’s decimation of fuel demand meant this didn’t happen.”
Unfortunately, there are really no optimistic takeaways from the negative earnings report. Even on the consumer end, you don’t see too many people celebrating cheap gasoline prices. Yes, some consumers have taken cues from the discount at the pump and bought luxury vehicles that don’t place a premium on fuel efficiency. But those are also folks on the affluent end of the spectrum. For most of us, we’re just trying to get by in this new normal.
Moreover, I’m not getting any indication that demand for fossil fuels is going to pick up substantially on a net basis. And that might be due to sharply rising new coronavirus cases. According to data from the Centers for Disease Control and Prevention, the seven-day moving average for new cases was greater than 84,000 on the eve of the election.
Of course, there’s much contention around the data due in part to Covid-19 fatigue. However, the issue is still relevant for BP stock because of its implications for travel demand. Although it’s too early to say for sure, it appears that the recovery of air travel demand has slightly diminished in recent days.
Should infections worsen into the holiday season, state governments could take restrictive action. And that may cut into other forms of transportation during the busy season, which were already on shaky ground since the pandemic struck. That’s not what you want if you’re long BP stock.
Politically Insulated in an Unhelpful Way
To be fair, the near-term rumblings could change for BP stock, depending on who takes the White House. Presumably, President Trump would be helpful for fossil fuels, while a Biden administration would not, due to strong support for clean energy.
Nevertheless, no one person has the ability to conjure up demand, even if that person is the President of the United States. Furthermore, while Trump may fundamentally be supportive of fossil fuels, many Americans have criticized his handling of the Covid-19 pandemic. His laissez faire approach to the coronavirus could worsen the crisis.
And that’s only one major headwind impacting BP stock. The other is the economy. Again, no matter who takes the win, it’s going to be a gargantuan task. Therefore, conservative investors should still watch this stock from the sidelines (as we are right now with the election results).
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.