Note: InvestorPlace offices will be closed for Independence Day on Monday, Jul. 3 and Tuesday, Jul. 4. Regular hours, including Customer Service, will resume at 9:00 a.m. ET on Wednesday, Jul. 5.
Hello, Reader.
For the past few years, we’ve kicked off the start of the New Year with three “Power Trends” I see reigning supreme in that year.
A “Power Trend” is a play on “megatrend,” which macroeconomic traders like myself follow very closely. By looking for big-picture trends that drive huge, multiyear moves in entire sectors of the market, I’ve been able to give my readers the opportunity to score double-, triple-, and even quadruple-digit gains in just a few years.
Catching just one of these megatrends – at the right time – can help anyone accumulate enough capital to finance their dreams and to provide themselves with an enviable retirement…
And in January of this year, I named my three favorite megatrends for 2023. I referred to the first of these megatrends as: “Old Energy” Still Shines.
So, now that we’re officially at the midpoint of 2023, today, I’d like to go back and check in on this particular trend. Amidst all the buzz surrounding artificial intelligence, spending time examining investments in the energy sector could seem like… well… a waste of time.
But as world-altering as AI may be, it requires an energy supply to work its magic.
In that sense, it is no different than a lightbulb or an air conditioner… or an airplane.
From the oil market’s perspective, AI is simply the newest member of the vast collection of gadgets and technologies that are driving worldwide energy demand toward record levels…
Special Replay for The A.I. Prediction Project Event
If you missed The A.I. Prediction Project Event … don’t worry, for a limited time, we’ve made a replay available to the public.
If you’re at or near retirement age, you don’t want to miss this… An-E’s predictions could help you make up any money you may have lost during the past 18 months and then some.
During the event, we even reveal An-E’s predictions of the stock prices of NVDA, AAPL, SYM for FREE.
“Old Energy” Still Shines
In the most famous line from one of the most famous movies of all time, a central character says, “You’re gonna need a bigger boat.”
That movie, of course, was Jaws. And that memorable line from Chief Martin Brody (Roy Scheider) was stating a simple truth: Catching and killing the massive great white shark that had been terrorizing Amityville would require a lot more muscle than what the townsfolk had imagined previously.
The global energy transition is no different. We’re gonna need a bigger boat.
In fact, we’re going to need a lot more of every energy source over the coming decades to accomplish the transition from fossil fuels to renewable technologies.
“Old energy” will carry most of the load during the early years of the transition, as it guides “new energy” to the pinnacle of global power production.
Producing an electric vehicle (EV), for example, requires about twice as much energy as producing an internal combustion engine vehicle. That’s because EVs are essentially batteries on wheels… and batteries are basically just hunks of metal.
Mining and processing all of that metal demands a lot of energy.
To unearth enough raw ore to produce a single midsize EV battery, for example, mining operators must excavate about 250 tons of terrain. After that, they must transport roughly 50 tons of ore to various facilities around the world that can extract the targeted metals and then refine them to battery-grade standards.
With a few exceptions, every step of the process consumes some form of fossil fuel. Most other renewable technologies are even more energy-intensive than EVs.
Therefore, far from replacing fossil fuels, renewable energy technologies begin their productive lives by consuming more fossil fuel than legacy “dirty” technologies like internal combustion vehicles and natural gas-fired power plants.
In effect, renewable energy is the “trust-fund kid” of the energy world. It requires a lot of help from the prior generation before it is capable of doing things “on its own.”
Eventually, as sustainable energy sources become more ubiquitous and diverse, they will compound their success and pull themselves up by their own bootstraps.
That’s the endgame, obviously. But fossil fuels are still as popular as ever.
Global natural gas demand, for example, is hitting all-time highs, while crude oil demand is close to record levels. Even coal demand is hitting all-time highs!
Clearly, the existing combustion-powered paradigm continues to stoke demand for fossil fuels.
Here in the U.S., for example, crude consumption has finally returned to pre-COVID levels. Even more incredibly, China’s crude consumption is hitting record-high levels, despite the country’s still-sluggish economy.
Uncertain Supply
Although U.S. shale oil production has been trending higher recently, it is barely above the peak levels it hit three years ago. Furthermore, despite the relative strength of shale production, overall U.S. oil production remains 600,000 barrels per day below peak levels.
In theory, the global petroleum industry could boost crude output significantly over the next few years. But very few oil companies are spending the billions of dollars needed to make that happen.
According to the International Energy Forum and IHS Markit, the world’s oil companies must invest $525 billion per year through 2030, just to keep pace with demand growth.
Instead, the world’s oil companies are spending about $500 billion less per year on exploration and production than they were in 2014.
To add perspective to these numbers, Rystad points out that for the first time ever, annual investment in oil and gas exploration last year fell behind global investment in renewable energy projects.
Despite this compelling array of bullish data from the energy industry, the oil price is not trading north of $100 a barrel. Instead, it has been treading water around the $70-level for the less two months… and most oil stocks are also treading water.
Perhaps oil stocks “see” lower crude prices on the horizon… or perhaps they are simply taking a breather before attempting a fresh move to the upside. Whatever the case, several real-world gauges are indicating that crude supplies are relatively tight.
Worldwide crude demand is high and rising. Demand is close to 102 million barrels per day, which is slightly higher than worldwide production levels. Therefore, assuming the global economy continues dodging a severe recession and resumes growing into the second half of this year, the oil price could catch a strong tailwind.
$80 per barrel is my first price target, and I would not be surprised to see $90 by year-end.
If my expectations are on target, most oil stocks are coiled springs that could produce surprisingly strong gains over the coming months.
Regards,
Eric Fry
Editor, Smart Money
A lot of people don’t realize it… but America has been divided into two groups for the last 30 years or so…
Now when I talk about two groups… I’m not talking about rich or poor…
Instead, these two groups revolve around those who know how to leverage new technologies… and those who don’t…
The 1% make up the first group — the ones who managed to take advantage of the internet’s wealth-building opportunities.
While the 99% make up the second group.
Right now, there’s an incredible opportunity for everyday Americans to ascend to the first group…
It’s all thanks to a brand-new technology silently taking the country by storm.
