Weekend Dec 10 2016
Natural Gas on Upswing as Trump Signals
New Regulatory Relief
Oklahoma Attorney General Scott Pruitt is a constitutional scholar, a federalis,t and a lawyer. And for those reasons he is a sublime choice to knock down the biggest conceit of the Obama era-arrogant, overweening Washington rule.
Kimberly Strassel, Wall Street Journal, Friday 12/9/16
After listening to Al Gore this week, President Elect Trump went the other way on climate change and regulation. It is important to note that President Obama could not convince his own Democrat House and Senate the first two years of his administration to pass climate change legislation.
Obama reacted by announcing he had a pen and a phone and would simply go around Congress. He ordered various agencies, primarily the Environmental Protection Agency EPA, to essentially make the laws via regulations he could not get passed. Recall that one minion in the EPA proclaimed he was out to ‘crucify’ those in the energy industry.
The latest example of over reach is ordering the Army Corps of Engineers to stop a pipeline construction in North Dakota, not to mention the Keystone Pipeline.
We can expect howls of protest from the left over the selection of AG Pruitt. Since his 2010 Oklahoma election he set up a federalism unit to fight federal over regulation.
Other picks suggest a reversal of the Obama regulatory legacy. Andrew Puzder is CEO of CKE which includes Hardee’s and Carl’s Jr burger chains. He has authored numerous articles detailing the danger of higher minimum wages. He points out this will lead to fewer jobs, not higher wages. Already McDonald’s has announced customer order kiosks which will no doubt replace counter staff. Expect more mechanization of such facilities. Or plan on spending a lot more for a pizza or hamburger.
Expect more changes at the National Labor Relations Board as those positions come up for appointment. The NLRB has re-written the law in an attempt to make it easier to unionize fast food workers.
Get ready for fireworks as Tom Price for Health and Human Services comes up for consideration. He is a physician and critic of Obamacare. We can expect changes from Dr. Ben Carson assuming he is confirmed at Housing and Urban Development. And finally, billionaire Wilbur Ross at Commerce might actually shine some light on what that Department actually does for us.
The response to this has been soaring stock prices. The markets generated a Dow Theory buy signal a month ago and again this week. A buy signal occurs when the Industrials and Transports both record new highs. Orders for large trucks are up as well.
The next beneficiary is natural gas prices. Firms like Consol have switched from coal to natural gas production. Natural gas prices are up 58% this year, jumping 41% since November 11. And yes the dots are connected, that date is right after the election.
Even with regulatory over reach there are four approved Liquid Natural Gas LNG import terminals on the Gulf Coast. And there are another nine export terminals. Obama was determined to displace coal and it appears that has happened. Natural gas is now cheaper and was always cleaner.
So it is not surprising that both the Intercontinental Exchange ICE and the Chicago Mercantile Exchange CME are quoting spot LNG prices. Expect the creation of futures contracts for LNG similar to what already exists for West Texas Intermediate Crude Oil.
We suggested in this space that the markets were assigning over confidence to an OPEC or Russian deal to curb output of oil. Indeed after reaching up to $53, prices have abated a bit. We expect another higher low low in crude prices in January. But the march toward higher prices for crude oil and natural gas is underway. We are expecting higher prices for both by the end of 2017.
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