'Drill Baby Drill' — Trump Rallies Support On Oil, Calls Clean Energy A 'New Scam Business' Amid Geopolitical Tensions And Supply Concerns

Perhaps nothing visualizes the impact of inflation on consumers more than the price of gas. It's displayed in large neon lights that drivers pass by multiple times per day. When President Joe Biden first took office, gas prices were at a national average of $2.40 per gallon. In June 2022, they spiked to over $5 per gallon before settling down to about $3.10 today.

While the general rise in the cost to fill up the tank has hit both consumers at the pump and indirectly Biden's sub 40% approval rating, it's been a welcome rise in profits for big oil companies, which have underperformed the broader market in recent years.

The Energy Select Sector SPDR Fund XLE, which counts Exxon Mobile Corp. XOM and Chevron Corp. CVX as its biggest holdings, is only up about 30% in the past five years compared to the S&P 500's roughly 80% rise over the same period.

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One possible way to lower energy prices is for America to tap more energy it already has, as former President Donald Trump recently implied by saying, "We are going to drill, baby, drill." It should be noted, however, that U.S. oil production has already hit a new record high under Biden's watch at the end of 2023. Regardless of their policies, both know that higher energy prices do not help their electability.

Even if the president needed to control the price of oil, he can only do so much. A significant amount of the oil market is dependent on international players. Large oil producers such as Russia and Iran are adversaries to America, and OPEC, which accounts for about 40% of global oil supply, can move the market at will by adjusting supply and demand.

Geopolitical events may be a catalyst for further moves higher, with Iranian-backed Houthis attacking ships in the Red Sea and The White House vowing the U.S. "shall respond" after a tragic attack by another Iranian-backed group in Jordan that killed three U.S. service members and wounded at least 34 more.

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On top of the increased risk of geopolitics raising the price of oil, supply concerns could be on the near horizon. Vicki Hollub, CEO of Occidental Petroleum OXY, expects a supply shortage to come as soon as 2025, saying, "2025 and beyond is when the world is going to be short of oil." She supports her thesis by referencing that while oil companies were finding about five times more oil than was being used from the 1950s through the 1970s, that number has declined to around 25% in 2023. 

One big catalyst to watch just before then will be the continued campaign rhetoric leading up to the 2024 election and which party eventually wins the election.

However, some like David Rubenstein, co-founder and co-chairman of The Carlyle Group, are less interested in using who becomes president as a guide to market movements, saying, "The statistics show that the economy actually does the best when you have divided government."

If history is a guide, perhaps the best outcome won't depend on which party wins but on whether they have to share power with their opposition or not.

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