Sullivan: What the 2026 midterms could mean for energy investors

Don't expect huge near-term moves in energy stocks off the results of the midterms. But there are some investing implications over the longer-term. Let me break it down.

Yes, it's entirely possible that one or both houses of Congress will shift to Democratic control. That's not my opinion. It's what many of the research reports, polls, and prediction markets are suggesting as of this writing.

For argument's sake, let's say that this time the polls are correct. The election ends with a "blue trickle," and Democrats win out with a slight edge in the House, Senate, or both. It won't be enough to meaningfully change, well, anything. If the election ends with just a slight lean to the Democratic side, it won't be enough for a veto-proof majority. Candidates can specify policies — like halting the growth of data centers — all they want, but there's a chasm between being elected and passing new laws.

Research I've read and conversations we've had on CNBC suggest that the next two years in Washington, D.C., will be flush with finger-pointing, investigations into the president and his family, and posturing ahead of the far-more-important 2028 presidential election.

S&P Global doesn't exactly agree with me, saying that Democratic control of either chamber would bring "tougher oversight of agency decisions" and could impact things such as tax incentives and "other policies underpinning long-term energy investments."

A Democratic Congress could be good for offshore wind, an energy source the president seems to hate with the white-hot passion of the sun. Speaking of the sun, a shift blue could also be positive for the continued growth of solar, perhaps via new tax incentives. Though both are growing rapidly.

If the Republicans maintain control over one or both houses, we keep doing more of the same, albeit with more urgency. S&P Global adds that "a continued Republican majority would give the administration more room to pursue expanded domestic production, faster permitting and environmental deregulation, though narrow margins could limit major legislation."

Any change in control of Congress is also unlikely to make a big difference around the Iran conflict. Once any new Congress begins in January, things will have either ramped up, stayed the same, or cooled down. A new Congress could try to use its authority under the War Powers Act. The team at Piper Sandler agrees, writing that "elections matter, but will likely not change the direction of things" as Trump focuses more on his own legacy. That's a polite way of saying that the President is going to do largely what he wants, Congress be darned.

On the state level, the midterms may matter a little bit more, particularly as they relate to energy-hungry data centers. In Texas, a change in the statehouse could bring a change in sentiment around data centers. Candidate Gina Hinojosa has a policy to "end data center madness" and supports a moratorium on new builds. Amy Acton also supports a "conditional moratorium" on new data center builds in Ohio. Vivek Ramaswamy is also calling for conditions on new data center construction.

The issue is a big deal in many states. Yet even if those candidates, or candidates with similar views on big new energy projects, win, they'd still have to enact meaningful change. Which could happen, of course. So let's say it does happen. New governors enter office and use their power to throttle or even stop new projects. Even if some of the big new projects are stalled or stopped, power demand, at a minimum, would stay at current levels. Which means demand for power production inputs such as natural gas, nuclear, and yes, even coal, would remain at current levels.

As far as power-hungry utility stocks go, Bank of America agrees with my election take above - mostly. Its team writes that it thinks the "2026 cycle matters for utility equities in far fewer states than the headline count suggests," but that committee appointments in each state will matter. The BofA team says that, regarding the election and utility stocks, five states matter most: Georgia, Ohio, Oregon, Pennsylvania, and Texas.

Texas is the "most consequential," as state environmental regulators have halted data center permits. That state's Commission on Environmental Quality (TCEQ) has actually stopped electronic permitting to make sure any permit is unrelated to data centers. To my point, that's already known information. It matters, but markets are already aware of it and have priced it in. Regardless, if you are investing in anything related to data centers, it wouldn't hurt to pay attention to Texas' election most of all.

There's a lot here. So take a breath, step back, and consider where we are right now.

U.S. oil production is at a record high.

The Strategic Petroleum Reserve is at a 40-year low.

We have two wars in some of the most important energy regions in the world.

The backlog for data centers - and thus the power needed to run them - is years long. Even if a number of them end up canceled, others will be built.

These days, it's hard to be certain of anything. But I am certain that overall energy demand isn't going down in America anytime soon. The only way to go is up. It's just a question of how much farther up.

That's my opinion. It could be wrong. And since I love hearing from you, I put out a poll on both X and LinkedIn. The results suggest you disagree with me.

Note → I am fully aware that the results of any poll on X or LinkedIn will be skewed by my type and makeup of followers on each platform - who lean heavily into both business, money and energy.

So if the elections won't matter in the near term for energy, what does?

Glad you asked.  Here's my ranking of what will matter for energy in the next year:

1. Iran and Hormuz
2. Russia's war on Ukraine
3. Interest rates
4. Macro U.S. and global economy
5. Permitting reform

(Disagree?  Hit me up on X or LinkedIn and let me know why)

An end to either the Iran conflict or Russia's war on Ukraine would be massively positive for the world and send oil, natural gas, and refined products lower relatively quickly. Let's all hope for peace.

Lower interest rates would help many of the beaten-up stocks that rely on debt and consumer lending to prosper. Think residential solar panels.

The macro economy is going to do what it will, regardless of the U.S. elections, and American tax policy is largely unchangeable for the next couple of years.

Permitting reform is, of course, one factor that could be impacted by the election outcome, though it's unlikely to happen in the near term.

No, my friends, whatever the outcome of America's elections, it's safe to say the real political attention will be on Trump, more Trump, Trump's family, even more Trump, and then looking ahead to 2028's presidential vote.

If we could harness political infighting into some sort of power source, it may be better than nuclear!

But I digress…

I'm leaving for Europe this week to continue our five-year coverage of Europe's slow-rolling energy crisis. And while the word "crisis" is way overused in the media, I don't think it is here. Natural gas import prices are soaring. Storage levels are below recent averages. Interest rates are rising, and the public is already rage-filled about higher energy prices. It's a toxic combo. And I'll be in Europe later this week to talk about it.

Thanks for reading and watching,
Brian

Since writing that, the Nasdaq is down over 5%. A.I. isn't in a bubble, but not all companies are going to prosper. Some may go away. Watch the debt markets, particularly some A.I.-related high-yield (aka "junk") bonds. The State Street High Yield (JNK) ETF is prominently on my screens these days. Get to know the term "leveraged ETF," because those are in focus these days. The selling in many of these products can lead to selling in other products and stocks. If we get a slowdown in selling in those, some of the big tech stocks that have been selling off might stabilize.

Turning more specifically to why you are here: energy.

Earnings are (almost) behind us. ExxonMobil (XOM) and Chevron (CVX) posted big numbers last week. Marathon Petroleum (MPC) just reported, and those numbers were even bigger. The company earned $26.59 per share on $11.7 billion in EBITDA. That compares to EPS of $3.01 on earnings of $3.2 billion EBITDA one year ago.

ConocoPhillips (COP) caps things off later this week.

So what now?

What now is that the world waits, watches, and focuses on Iran, the Strait of Hormuz, and Russia. What happens with those will determine the path of prices for oil and much more. Peace, and prices go down. New attacks, prices go higher. Higher prices mean many big-cap oil and gas stocks keep going higher. If Russia continues its brutal war against Ukraine, diesel fuel and jet fuel prices are going to remain volatile.

My take → Keep an eye on any headlines related to Russia selling diesel fuel to the United States. There is one ship on the way (see the RBI below), and let's see if more follow.

The continued risk around Iran and Russia pushed Goldman Sachs to raise its oil price forecast for the rest of this year. The firm is taking Brent crude to $105 and WTI crude to $94, and raising its average targets for next year to $88 for Brent (from $80) and $78 for WTI (from $73). Let's see if others follow.

While earnings have U.S. analysts swamped, Goldman's European team isn't too busy to update its "European Conviction List" of stocks. Some of the names it likes most are energy-related, including German power producer RWE (RWE-DE) and the better-known Siemens Energy (ENR-DE).

Concerns about AI, power, and rising interest rates have recently hit both stocks. RWE is down 4% this quarter, with Siemens Energy falling over 10%. Goldman remains bullish. The firm has a €212 price target on Siemens Energy and a €75 target on power producer RWE. That implies about a 30% return on RWE and a huge 70% upside on Siemens Energy.

Europe may have a world of energy problems, but that doesn't mean some of its stocks can't make you money. For more, tune in to my live CNBC coverage from Italy on Thursday, November 5.

Could the one ship carrying Russian diesel fuel bound for America… actually skip America? It might.

The vessel we've had a close eye on for a week is moving slowly in the Atlantic Ocean. So slowly that some are now wondering if the ship will actually make it to New York. Could the destination change mid-voyage? It happens with ships all the time. A new buyer steps in to buy the cargo, and the ship changes course.

It does make you wonder… what American company would buy a load of Russian diesel right now? Putting money into Putin's pocket is not the PR that any company I know would want, but stranger things have happened.

The ship is supposed to dock in New York on November 7. Following the course of this ship right now is definitely random, but interesting.