In this issue:

We’re living in highly politicized times, so let’s get this out of the way: neither of us has any interest in getting you to like or dislike President-elect Donald Trump, or in fact to support any particular position.

Our only purpose here is helping you make money by analyzing energy industry trends and stocks. But right now that means analyzing the likely extent of the policy sea change triggered by Trump’s election, and of course our conclusions and indeed the priors on which they’re based may be different from yours. In fact, we hope so, because if we’re all making the same assumptions and reaching the same conclusions they’re that much more unlikely to pay off in a market that tends to punish followers of conventional wisdom.

In any case, don’t interpret as criticism Igor’s assertion that Trump’s preferred oil price is one that will most pad the wallet of his friend and possible energy secretary, Continental Resources (NYSE: CLR) CEO Harold Hamm. After all, Trump promoted a renewed boom in energy production as one of his key prescriptions for the economy. And you can’t have that if shale tycoons are skimping and firing people instead of drilling. So based on Trump’s platform a higher oil price in the near term is clearly consistent with his view of the national interest.

Acknowledging that presidents seldom get the oil price they want, Trump does have a way to get there that fulfills another campaign pledge and other policy objectives. Tearing up the Iran nuclear accord would give him a foreign conflict around which to rally the domestic base, and squeeze the oil exports of Iran, while potentially giving Saudi Arabia an incentive to curb its output.

Oil is rallying today for the first time since Trump’s election, but there’s a lot more of that in store if the geopolitics plays out as we suggest. Coal producers also caught a break, likely at the expense of natural gas.

Robert’s midstream and downstream review this week focuses on the Trump boost likely to accrue to pipeline operators and refiners. Like oil stocks, much of the MLP sector has been slow to respond to the implications of Trump’s victory, with the notable exception of Energy Transfer Equity (NYSE: ETE). Expect some catch-up gains in the near future.

To capitalize on that forecast, we’re recommending two aggressive oil plays. And we’re likely to have more crude-levered picks in the next issue.

Portfolio Update

• United States Oil Fund ETF (NYSE: USO) added to Aggressive Portfolio; buy below $11
• WPX Energy (NYSE: WPX) added to Aggressive Portfolio; buy below $15

Commodity Update

Things are about to get really interesting. Expect a fair amount of volatility as the markets come to understand and come to grips with the political changes that are underway. Oil prices have fallen over the past month on fears that OPEC may not make any production cuts, but we explain in this issue why we think the direction is more likely to be up in the near future. As I warned previously about natural gas, it has broken below $3/MMBtu as we head into winter with stocks at essentially an all-time high. We also discuss the implications of Trump’s election on the outlook for natural gas, which suddenly becomes less bullish in the short-term fiven the improved outlook for coal. We do a deep dive this week on how we expect the energy sector to fare across the board as new policies take hold and old ones are swept aside.  

In Other News

• In one of the greatest upsets in the history of U.S. presidential elections, Donald Trump defeated Hillary Clinton

• Beleaguered coal producers surged the day after Trump’s victory

• Royal Dutch Shell (NYSE: RDS-A) projects demand for oil could peak in 5 to 15 years

• The U.S. Energy Information Administration (EIA) predicted that the spot price of natural gas will rise to an average of $3.12 per million British thermal units (MMBtu) next year, up from an average of $2.50 in 2016. The EIA also reported that U.S. annual natural gas production is expected to decline in 2016 for the first time in 11 years

• In a report issued four days before the election, the U.S. Chamber of Commerce warned that a federal ban on fracking for oil and natural gas would cause fuel prices to surge, leading to job losses, higher electricity and gasoline costs and an increased cost of living, especially in top gas-producing states like Pennsylvania (which Clinton subsequently narrowly lost to Trump).