Election Eve Prediction: Oil & Gas Futures Say No Green New Deal

Futures prices far out the curve are signalling no expectation for major policy changes. Pre-election prices say disincentives to fossil fuel production are likely not on the horizon, and fracking stays.

Futures markets live up to their name: they are a reflection of price expectations for commodities in the future. The forward futures curve, that is, the prices of futures contracts across the forward time spectrum (often years into the future) are generally traded by professionals with deep knowledge of the underlying commodity. The combination of this wisdom of the experts and the price transparency provided by the oil and gas futures curves can be a good predictor of future events, in this case, the outcome of the Presidential election.

Ordinarily, futures prices far out the curve represent both storage costs and expectations in changes in supply and/or demand. Storage costs are widely known and don’t really change that much, it’s political and regulatory changes that can fundamentally change perceptions of supply and demand in the future enough to affect the forward pricing curve.

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In the oil and gas industry, there are two lines of thought with regard to future energy prices should the Green New Deal, or major portions of it, be put into practice. One line of thinking says prices of fossil fuels would unnaturally rise, because production would become more costly due to regulatory burdens and penalties, but consumption would remain unabated, creating an imbalance resulting in higher oil and gas prices.

The other line of thinking says that the Green New Deal will cause fossil fuel related energy prices to fall, because demand for the fossil fuels, disincentivized by penalties for use, will decline faster than their rate of production, resulting in surplus supplies, declining demand, and falling prices.

In both cases it is assumed that the Green New Deal will put regulatory obstacles in place for the production of fossil fuels and there will be disincentives (probably taxes) implemented for the use of fossil fuels. Conversely, there will be incentives put in place for the production of alternative energy sources and there will be incentives put in place for the use of alternative energy.

The dramatic and sudden changes anticipated in any Green New Deal legislation would most certainly be reflected by now, election eve, in the forward pricing curve of both natural gas and crude oil. But no such price patterns have emerged in either commodity. Prices of both crude oil and natural gas as of this writing predict nothing more than ordinary storage costs and seasonal pricing patterns going out 10 years in crude oil and 12 years in natural gas.

The greatest minds in trading, via the forward futures curves for oil and gas, are predicting status quo: abundant traditional fossil fuel energy production and a continuation of current energy policies. If one assumes a mandate for the Green New Deal is on the ballot this Election Day, the futures markets are signalling a defeat, or at least a “not this time” sort of outcome.

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