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Oil mixed on prospect of divided government

Yahoo Finance’s Alexis Christoforous and Bob Yawger, Director of Energy Futures at Mizuho Securities, discuss the energy sector amid election uncertainty.

Video Transcript

ALEXIS CHRISTOFOROUS: I want to stay on oil now and bring in Bob Yawger, director of energy futures at Mizuho Securities. Bob, thanks for being with us today. So look, it looks like the market is betting big on a divided government. If Biden does indeed take the presidency and the Senate remains Republican, what are the implications for the crude oil market? Is that seen as perhaps a modest negative for the market?

BOB YAWGER: A plan to pivot towards a green energy economy. If he has to run into a-- he has to run that through a Republican Senate, it's going to be difficult to get that program passed. So I think along those lines, you're seeing the bid in the market on assumptions that he's going to struggle to go green.

That implies that we'll have fossil fuel in the mix here in the United States for some time. He's not going to eliminate. He probably will struggle to make deep cuts into fossil fuel. And that's part of the reason for the rally that we see today.

Also, a Republican Senate also implies that taxation is not going to be easy goal for fighting either. And that would also be a positive demand indicator for crude oil.

ALEXIS CHRISTOFOROUS: Does it also increase the odds, Bob, of Iranian oil coming to market sometime in 2021?

BOB YAWGER: It certainly does. That would be on the bearish side of the equation, but yes, the Iranian nuclear program from-- the nuclear pact from 2015, Biden will try to bring the Iranians back to that program. And that would be a bearish development. That would legitimize Iranian barrels on the international market. And we really don't need those barrels right now. It's an oversupplied global market. But that would be the consequence.

ALEXIS CHRISTOFOROUS: There was this pivotal moment in the second and final presidential debate in which Trump pressed Biden on fracking and oil. And Biden denied that he opposed fracking outright, but he did admit that his administration would transition away from the oil industry. So as an investor hearing this, how do you position yourself if a Biden presidency is looking more and more likely?

BOB YAWGER: Well, there's an index, the ECO index. It's the Wonderhill Green Energy Index, ECO. That is, to a certain degree, a-- it tracks, basically, Biden's chance of success in the election. It's been trading-- it's been ripping to all-time highs as of late.

Today, keeping in mind that everything else is deep green today as far as energy prices, stock prices are concerned, the ECO is actually down about two percentage points today. That tells me that that index is struggling-- the perception is, it will struggle to get a green agenda passed in the Republican-controlled Senate.

There will probably be some successes on the Biden side of the equation here moving forward if he does, in fact, win. But he is going to struggle against the Republican Senate. He will not get everything he wants. He may get some-- he may be able to horse trade some bits and pieces here and there.

But it's not-- we're in no danger of turning solid green here as far as energy in the United States is concerned. We will have fossil fuel for some time. The president, if it is, indeed, Biden, he could scale back drilling on private-- public lands. That is a possibility. There's other measures that he could take to stop the onward progress of fossil fuels. But in general, green energy will struggle with the Republican Senate.

ALEXIS CHRISTOFOROUS: What about solar stocks? I mean, they've been moving a lot lately with oil being such a big topic in this election. If Biden is going to be a negative for traditional oil and natural gas producers and focuses on the adoption of clean energy, are solar stocks perhaps the best opportunity for investors during his presidency?

BOB YAWGER: Well, then, that ECO index, it's not a tradable financial instrument. It's an index of about-- I don't know-- 50, 60 names. There is a pretty large solar names in there, and they've been ripping to the-- on any given day, they can be up 6%, 7%, 8%, 9%. They rip hard to the upside. And that has been the case as of late.

I don't think the index will fall apart. But we may have seen that as short-term high here until we get a better idea of the relationship between whoever is going to be president-- it looks like it's probably going to be Biden at this point-- and the relationship they have with the Senate. I think that will go a long way towards implying how successful solar will be on a gigantic scale here.

The technology is there for solar. We just need somebody to basically, you know, put it out there on a mass scale and support it and actually put some government support behind it for it to really take off, kind of the way they did for energy. Now we are an energy independent country.

ALEXIS CHRISTOFOROUS: Right, and we know that President Trump has been working towards that. But Bob, you've got Texas and Ohio going Trump. If Pennsylvania does indeed wind up going Trump, and it's unclear now if you do the math if Biden even needs Pennsylvania at this point to get to 270, but would Biden, do you think, have lost Pennsylvania because of his views on shutting down hydrocarbon infrastructure?

BOB YAWGER: Yes. Short answer is yes. I want to point one thing out about Pennsylvania, though, and fracking. That is natural gas. It's not crude oil. So I get the feeling a lot of people think there's a lot of crude oil flowing out of Pennsylvania. That's not true.

Originally, at the beginning of the Industrial Revolution, that was the case. But now it's natural gas. There's a lot of natural gas. It's a big part of the economy of Pennsylvania. But it's natural gas, not crude oil. But yes, I think that his admission that he was going to be an adversary of fossil fuel in Pennsylvania, that did-- I think that did take some votes from him.