On June 6, 2022, President Biden invoked the Defense Production Act to “accelerate domestic production of clean energy technologies, including solar panel components.”
The government is hugely supportive of renewable energy, and Biden has reserved presidential powers, usually for emergencies.
You probably weren’t the only one who saw this as a signal to go all-in on renewable energy stocks.
One day it may prove to be the right decision, but right now everyone is missing out on a much bigger chance. straight away chance.
Honestly, this move by Biden distraction The real energy story of the year…and, in my opinion, the rest of the decade: oil and gas.
Regardless of what the White House says, I believe oil stocks will significantly outperform the S&P 500 for the rest of the 2020s…
Few understand or see this coming…
Let’s see why a massive oil bull market is forming before our eyes…
Oil’s next tailwind
Turn the clocks back a year and we were in the midst of an oil and energy boom driven by two main factors.
- Post-COVID demand has shrunk as people have returned to traveling and commuting.
- Russia’s invasion of Ukraine and subsequent international sanctions against the aggressor.
However, a shift occurred in the second half of 2022 as oil prices fell and investors digested these large shifts.
The next few months will see some benefit from tailwinds, but this is a whole new ballgame.
As you know, the 2014-2020 oil bear market saw the worst oil and gas producers go bankrupt.
However, the best companies have drastically reduced their cost structures to ensure their survival.
It’s generating record free cash flow now that oil prices have risen again.
They are in their best position in decades, but investors have yet to catch up.A lot of people got burned in the 6 year bear market I mentioned above so they’re hardly even Looking With energy, not to mention buying it.
Many oil and gas stocks are trading at cheap valuations even after a big rally in 2022. As such, the energy sector currently accounts for his 10% of S&P 500 earnings. Only 5% of market capitalization:
Investors who kept an open mind and saw opportunities in developing the ‘old and dirty’ energy sector have been rewarded.
How this plays out as we look at the performance of the top oil and gas exchange-traded funds (ETFs) since the start of the bear market compared to eco-friendly funds like the Invesco Solar ETF (NYSE:TAN) You can see if you did.
As you can see, XES is up 81% over the last 12 months, while TAN is up just 3%. (Needless to say, the S&P 500 is down more than 17% of his.)
This is a 27x return on what is considered a benchmark “green energy” investment.
The energy sector has retreated a bit in recent weeks, again on the back of falling oil prices, but the bullish trend in energy stocks is certainly off track…
Global oil demand will continue to increase in the coming years.
And while demand for oil continues to grow, the supply side remains tight after years of underinvestment (remember the chart above) … prices go up.
In short, today’s short supply of oil is because … many producers have gone out of business and surviving producers have cut costs instead of increasing production (as they should in an oil bear market!).
But now oil and gas companies are making huge profits. And despite what President Biden might lead you to believe…
Oil demand is not slowing down
As the world population increases, the demand for oil continues to increase.
Not only is petroleum still the most popular choice for fuel and transportation, but it is also widely used in thousands of everyday products, including plastics, textiles, cosmetics, and lubricants. Don’t forget that it’s also used in factories and businesses.)
So as the world’s population grows, the economy needs more oil to keep things running smoothly. Demand for oil will increase further.
OPEC predicts that demand for oil will reach record highs in the near future.
As you can see in the chart above, oil demand from OPEC members could reach 12 million barrels per day by 2045.
And it’s just oil from OPEC. The International Energy Agency (IEA) predicts that by 2030, total global oil demand will reach 105.4 million barrels per day.
That’s an increase of 100,000 barrels of oil. per day From last year.
China alone will consume 15.7 million barrels per day by 2030. Demand for oil from its 1.4 billion citizens will soar as China eases strict lockdown restrictions.
Adding to this growing demand is the need for countries to replenish their depleted oil reserves.
As Mike Carr introduced earlier this monththe Biden administration has taken 180 million barrels of oil from the Strategic Oil Reserve this year alone to keep gas prices down.
their reserves Must Replaced… by law.
Twenty-nine other countries have pledged to tap their oil reserves to make up for what was lost due to sanctions on Russia’s oil exports.
So there are 30 counties that need to replace their oil reserves… and Increased demand for oil outside of its exchange.
All of this means a significant increase in oil prices through 2030.
So where are the best energy stocks to profit from? You don’t have to look far…
United States: The World’s New Oil Market
The United States, yes, the same country that currently uses backup power to produce solar panels, is fast becoming the new center of the global oil market.
Once a customer of OPEC oil, it is now becoming a rival.
The IEA predicts that the United States will account for 85% of global oil production growth by 2030. By 2025, the US is set to produce her 20.9 million barrels of oil per day. By then, combined crude and refined oil exports will overtake Saudi Arabia’s exports.
OPEC now controls more than half of the world’s oil supply. It will shrink to 47% by 2025, the lowest level since the 1980s.
If you’re looking for stable and reliable returns, US oil stocks can be a good option.
Many oil reserves have experienced incredible growth over the past year due to increased energy demand and increased efficiency in oil production.
There is no shortage of words, but oil stocks are where they should be right now.
At the very least, you should consider adding exposure to the Energy Select Sector ETF (XLE) in this recent sell-off. This is a great entry point for what I believe is a long and strong uptrend in the sector.
nice to meet you,
Adam Odell Chief Investment Strategist, money and market
PS Another good move…
Check out recent research publications by Charles Mizrahi.
Charles, like me and my team, has been talking about everything over the past year. In particular, he has focused on how much fossil fuels are involved in the production of so-called green energy.
Although his approach is different, we reach the same conclusion. Fossil fuels will be a large part of the future of our economy.
If you want to find out how Charles is setting his readers up to profit from this new energy bull market, click here.
Adam presented a great bullish case for energy stocks over the next decade, and I agree. I’ve been long energy stocks for a while now and have no plans to sell.
But while we’re at it, I wanted to add another major reason I believe energy stocks will do phenomenally well over the next few years: Crude oil is priced in dollars. We are here!
When the price is ‘up’, remember the price is up in relation to something.
Our unit of measure is dollars. However, the dollar itself is also a tradable asset and its value can fluctuate greatly.
energy is on the rise apart from One of the biggest dollar bull markets in history. Since the 2008 crash, the dollar has steadily risen against the euro, yen, pound sterling, and nearly every other major world currency. If you’ve ever wanted to go to Europe, go now. The dollar is at its strongest against the euro in 20 years.
You can see it on the chart below that tracks the dollar index.
But here’s the problem. The dollar bull market doesn’t last forever. Between 2000 and 2008, the dollar was worthless compared to the euro and major world currencies. When the exchange rate hits extremes, it bounces back. And today we seem to be seeing the early stages of that.
The dollar has been weakening since late 2022 and we expect this trend to continue.
Now, there is one caveat. The dollar tends to rise during periods of market panic. The reasons for this are complex, but they come down to flight to safety. When investors get scared, they sell riskier positions, especially leveraged positions, and stock up on dollars.
So if this small bout of volatility we are in worsens, I would expect the dollar to rise a bit more in the short term. The trend here is lower.
A cheaper dollar means more expensive energy. This means that energy companies can extract, transport and sell raw materials for greater profits.
Chalk it up as another major bullish point in favor of energy.
nice to meet you,
Charles Sizemore Editor-in-chief, The Banyan Edge