Ryan Stancil,
Editor
March 12, 2021
What’s old is new again.
It’s a saying that’s just as true in investing as it is in any other aspect of life that has to do with trends and phases. Sectors and industries rise, fall, and rise again.
Gold is notorious for it, as are technology, cars, and manufacturing.
More often than not, the fortunes of these areas are tied to overall economic outlook. And anyone who pays attention long enough can tell what’s coming before it actually happens.
It’s a scenario that’s playing out right now in the energy sector, specifically with oil.
The price of crude oil spent most of 2020 digging itself out of a hole for obvious reasons, and is now at a price it hasn’t seen since 2019.
And while the commodity has a ways to go to get anywhere near some of its historic highest prices, its projected upward trend shouldn’t be that much of a surprise.
Many different things happened to set oil’s recent upward price movement in motion and make it something that investors are beginning to eye more closely again. Much of that can be traced to OPEC and its allies. These countries collectively agreed to cut production and export of oil in February and those cuts will last at least through April.
It’s a calculated move that comes at a time when the world is starting to see the beginning of the end of the pandemic. With restrictions lifting, people returning to their offices, and life getting back to something that resembles normal, demand for oil is only going to go up.
And with it coming at a time where weather in the U.S. is getting nicer, people are going to want to make up for the past year. They’ll be driving to beaches, parks, vacation spots, or even just to visit family. Whatever the reason, there are going to be more cars on the roads in the coming months than there have been in the past year. OPEC’s latest maneuvering makes it so that there’s a higher cost to pay for that reality.
And while the oil cartel has a lot to do with this latest upward trend in oil prices, it’s not the only factor.
There was also an attack on an Aramco oil facility in eastern Saudi Arabia earlier this month. It was carried out by Iran-backed Houthi rebels based in Yemen. It’s the latest in an increasingly frequent series of strikes. It wasn’t as disruptive as some past attacks on Saudi oil facilities have been, but it was enough to affect oil prices around the world.
The who, how, and why of Middle Eastern conflicts is a long and complex story, but those outcomes have always affected oil prices. So this is just another example of history repeating itself.
How this particular round of oil volatility is going to play out is anyone’s guess, but there are many different factors to think about while the story unfolds.
There is the response from U.S. oil companies to consider. The country already produces a large share of what it consumes, and with OPEC tightening its supply, domestic producers might step up to make up the shortfall. It’s a possibility, but not a guarantee. And if it does happen, the results won’t manifest right away.
What might be more important is how leadership responds. President Biden has made addressing climate change one of his big agendas, first shown by his canceling of the Keystone XL pipeline. There’s also his plan to have every car owned by the government run on battery power over the next few decades.
While that plan faces its own roadblocks, it paints a clear picture of the government’s plans as well as the general trend toward renewable energy.
The electrification of everything is a trend that’s very much picking up steam. Cities and countries are doing what they can to move away from fossil fuels and so is the auto industry.
Just about every major manufacturer sells at least one battery-powered car and those offerings are gaining market share every year.
It’s an ongoing development that is poised to present an alternative to our longtime crude oil addiction. And while the price of oil may be in an uptrend right now, it’s going to come down eventually.
That may coincide with clean technologies and renewables going fully mainstream and oil will find itself in a much tougher fight during its next upward trend.
Nick had readers positioned in oil stocks starting in late November, and it has by far been the best performing sector of the S&P since then, with the SPDR Energy Fund (NYSE: XLE) outperforming the S&P 500 nearly five times over.
Now, there are several emerging names in the renewable energy industry that we’re looking at to ride this wave.
And Nick has a new premium report available today to members of Foundational Profits covering one of his top recommendations in the space. Members will get it emailed to them today.
Keep your eyes open,
Ryan Stancil
Editor, Daily Profit Cycle
Ryan Stancil is an editor and regular contributor to Daily Profit Cycle. He’s been active in the financial publishing industry for more than half a decade, offering insights and commentary on technology and geopolitics to help readers make sense of the constantly changing landscape and how it affects their investments. His readers appreciate his "tell it as it is" writing style, where he always offers a fresh new perspective on what's happening in the market and leaves nothing unsaid.