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‘You can’t just cut off fossil fuels without oil and gas prices exploding: Analyst on what a Biden presidency could mean for energy

Yahoo Finance’s Alexis Christoforous and Neal Dingmann, Truist Securities Managing Director, discuss energy outlook as Biden inches closer to the White House.

Video Transcript

ALEXIS CHRISTOFOROUS: All right, with Joe Biden inching closer to an electoral college victory, energy executives are weighing the potential impact of a president who supports shifting away from fossil fuels.

Joining me now is Neal Dingmann, managing director at Truist Securities. So Neil, I think when people start looking at energy as a sector, they might have that knee jerk reaction and think, you know, the major oil companies like Chevron, like ConocoPhillips, actually stand to lose during a Biden presidency. Would you buy into that?

NEAL DINGMANN: No, not necessarily. I think if you had that in the Senate, there was certainly talk about a new green plan. And there was some talk about what-- maybe some-- what I would call a harder stance, but with just Biden, that political stance themselves.

I think it's going to be more of a partnership. You certainly are going to have, as we've seen, the green energy stocks, the clean energy stocks have a very nice run. But I really think it's going to be more of a partnership because I think anybody that looks at the fundamentals of energy is going to realize, you can't just cut off fossil fuels in two years, five years, even 10 years without oil and gasoline prices exploding. So, again, I really call it-- I think it's going to be a partnership.

ALEXIS CHRISTOFOROUS: OK, so look, when you look at some of the things Biden has said he wants to do if he becomes president, he may halt drilling in the Arctic National Wildlife Refuge. He might shut down that controversial Dakota Access Pipeline. Where do you see opportunities for investors if those things really do come to pass?

NEAL DINGMANN: Sure. I think, you know, that the risk is everything you mentioned. There's a lot of things with on federal land that were probably the most growth. So again, where I see the opportunities would be companies like such that are in the Permian. You mentioned a lot of the majors.

What's very interesting when you even compare Chevron versus Exxon, Chevron, even on their call this week, really was highlighting just how much more they're going to get into renewables or how much they have gotten, I should say, in the renewables. So I think, number one, you have a lot of the big energy companies like Chevron that are already making that way.

I think if you want to stick into fossil fuels themselves and just purely fossil fuels, it would have to be more likely a company in the Permian that has very little to no federal acreage and more just private acreage, which really would not be under the Biden control.

JARED BLIKRE: Jared Blikre here. I want to get your take on Iran and the sanctions that are currently in place. If we do have a Biden presidency, do they go away? How does that factor into oil prices?

NEAL DINGMANN: Yeah, hey, Jared. I think-- that's a good question. I think they do come on, and the stance is more, obviously, softer towards Iran. There is, as you said, I think a bit over a million barrels. You know, the hard part we have right now, you still have 7 and 1/2 million barrels approximately that's still voluntarily shut in largely from Russia and Saudi.

So one has to think, you know, call that OPEC Plus, that if this does happen, and I think there's a chance, as you point out, that it strictly could, the onus is going to be on particularly those two countries. Are they going to step up and even voluntarily shut in more? If the answer is no, then instead of that price band that you were talking about, maybe call it mid 30s to low 40s, you could see something at least a few dollars even below that because of this additional supply.

Because, you know, unfortunately, the US and most of these US companies have become now the swing producers. So even if Iran comes in, they all right now are sort of producing what they call their maintenance capital levels, levels that they really need just to survive.

So most of my companies, whether it's as large as a Chevron or Exxon, down to, you know, a diamondback and some of the pure Permian companies, they really can't afford to shut down any more of their production. So to me, the onus is going to be probably most likely on Saudi and Russia.

ALEXIS CHRISTOFOROUS: What do you make of Jared talking about this range, this tight range we may see crude-- I don't know how tight it is-- that we might see crude trade in, between $34 and perhaps $40 a barrel?

NEAL DINGMANN: I think he's onto something, Alexis, because, you know, going back to that same point that I had, at any time, you still have voluntarily shut-in production, I guess, my fear-- I know there are some others out there on Wall Street calling for $65 oil next year. And I thought that the chances of that are still quite low.

Because, to me, the minute you get in the-- if you would get back in the mid 50s for whatever reason if demand would pick back up and take us back to the mid 50s, you're still immediately, I think, going to see Saudi and/or Russia start to loosen up some of that voluntary production.

So, to me, you know, not until this whole 7 and 1/2 million barrels that OPEC Plus is still voluntarily shut in, until that's finally gone-- and that could take years-- I think Jared's probably onto something, that you probably are where you used to have a range that we were comfortable with, somewhere in the 50s. That new range, I think he's right. I think it's going to be mid 30s to probably the low 40s if we're lucky.