Slogging into the unending vote count of the most recent US presidential election, you might ask yourself, how important is the American president to the health of the oil and gas industry? Do American presidents matter? We believe that the oil and gas industry votes overwhelmingly Republican, but when voting Republican, is the industry voting its “pocketbook”? Is a Republican president good for the oil and gas industry?
One way to measure this is to plot the number of active drilling rigs during each year of a president’s term. The conventional belief is that, if the rig count is rising the industry is doing well. If falling, bad.
The chart below plots 30 years of rig counts color coded BLUE for Democratic presidents and RED for Republican:
Here’s what we see:
BUSH I (RED): Faded the entire period and ended with a whimper after fighting a war in the Middle East.
CLINTON (BLUE): The collapse of the Soviet Union disrupted global oil demand/supply. US drilling hit a plateau until oil prices collapsed to $10 in 1999, which created an oil supply shortage and launched a decade of growth.
BUSH II (RED): Attack on NYC in 2001 temporarily halted the global economy, but war and a debt-fueled, supercharged economy surged demand for natural gas. Rig counts found new heights. However, in 2008 a global economic collapse was triggered and the year ended with a rig count crash right after setting new activity records.
OBAMA (BLUE): During the crash the US discovered it could drill horizontal wells in oil reservoirs and produce crazy amounts of oil. The oil industry surged again, but rapidly oversupplied the world with oil. By the end of Obama’s term the industry had suffered through two years of devastating collapse.
TRUMP (RED): Two years of dead stop under Obama teed up a race for more drilling while Trump revved up the economy. However, investors quickly tired of growth with no return and, by 2019 demanded fiscal responsibility of its oil companies. Drilling slowed. Then COVID hit and drilling stopped in 2020.
Here are three general conclusions:
Under Republican presidents the oil industry starts well;
Under Republican presidents the oil industry ends poorly;
Democrat presidents tee up growth AFTER they leave office.
I think this is what we are seeing: Rather than having a direct impact on the oil industry, presidents have an impact on the economy. Growing economies are good for the oil industry and flat/weak economies are bad for the industry.
Here’s a rule of thumb from these patterns: If you want to sell your oil-related company, don’t wait until the last year of a president’s term. Sell in the middle. If you wait until the end of the term you pretty much guarantee selling at a discount. And that rule of thumb has almost nothing to do with which party is in office.