Is Now The Perfect Time To Buy U.S. Oil Stocks?

After several years of bad news for oil investors, things are starting to look a bit more bullish for the U.S. oil industry. WTI crude oil prices jumped above $54/bbl on Monday following news that a group of non-OPEC oil producers will be joining OPEC and cutting crude oil output in an effort to eliminate the global oil supply glut that triggered the collapse in oil prices.

Russia and Mexico were two of the largest producers to participate in the new pact to cut oil production by 558,000 barrels per day on top of OPEC’s recent agreement to cut 1.2 million barrels per day.

Regulatory Environment Under Trump

In addition to the positive oil market news, Donald Trump’s victory on Election Day coupled with Republican majorities in both houses of Congress means the regulatory environment for U.S. oil companies could potentially be much looser in coming years.

In addition to his skeptical view of climate change, Trump has already made some key pro-oil appointments in his administration. Exxon Mobil Corporation XOM CEO Rex Tillerson is reportedly Trump’s leading candidate for Secretary of State. Scott Pruitt, Trump’s choice as the new administrator of the Environmental Protection Agency, is also a climate change skeptic.

The Bottom Line

For U.S. oil companies, the combination of fewer regulations and rising oil prices could be the perfect storm for the next business boom. Since Election Day, stocks of U.S. oil majors Exxon Mobil, Chevron Corporation CVX and ConocoPhillips COP are up 6.9, 9.9 and 18.3 percent, respectively.

Oil services stocks focused on the U.S. markets are also on fire. Halliburton Company HAL and Baker Hughes Incorporated BHI shares are up 16.7 percent and 12.8 percent since November 8.

Perhaps the oil stocks that could benefit the most from the Trump administration are smaller oil refiners. Rising oil prices typically eat into oil refiner margins, but Trump supporter Carl Icahn has called for a change to the fuel standards requirements that force some refiners to spend millions of dollars meeting annual RINs requirements.

While most oil stocks have rallied on rising prices in 2016, refiners PBF Energy Inc PBF, HollyFrontier Corp HFC and CVR Refining LP CVRR are all down more than 18 percent this year.

Disclosure: The author is long HAL and BHI.