Deregulate, Sanction and Tariff, Baby, Deregulate, Sanction and Tariff!

As we expected, energy stocks have strongly outperformed the broader market, even with lower crude prices. Trump’s sanction enforcement against Iran and threatened tariffs on importers of Venezuelan crude pressure China, by far the largest customer of both. This will allow Saudi and UAE to ramp up production from swing capacity. Trump’s deregulatory initiatives are sweeping and fundamental, including the likely elimination of the 2009 Endangerment Finding that labeled carbon a poison. Pipelines are suddenly being permitted. Leases on federal lands are thrown wide open. Alaska is a go. Bonding fees are slashed. Emissions and CAFÉ standards are loosened. This will save the oil industry as much as $10 per barrel, preserving unit margins even if prices fall. We retain our $60-$80 price target, but expect to lower it next year as producers and consumers respond to these incentives.