In this video we explain why climate change initiatives and ESG investing could counterintuitively benefit oil stocks.
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Wall Street Millennial is not a financial advisor and this video is for entertainment purposes only. Make sure to do your own research and consult with a professional before making any investment decision.
The author owns shares of OXY
Support us on Patreon: https://www.patreon.com/WallStreetMillennial
Public access Patreon Portfolio: https://www.patreon.com/posts/55374945
Check out our website: http://wallstreetmillennial.com/
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Music courtesy of:
––––––––––––––––––––––––––––––
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Creative Commons — Attribution-ShareAlike 3.0 Unported — CC BY-SA 3.0
Free Download / Stream: http://bit.ly/2Pe7mBN
Music promoted by Audio Library https://youtu.be/b6jK2t3lcRs
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Wall Street Millennial is not a financial advisor and this video is for entertainment purposes only. Make sure to do your own research and consult with a professional before making any investment decision.
The author owns shares of OXY
What's up guys and welcome back to wall street millennial on this channel, we cover everything related to stocks and investing over the past couple years. Electric vehicles and renewable energy have been one of the hottest areas of the stock market. Governments across the globe have committed to investing trillions of dollars in renewable energy over the next decade and phasing out traditional fossil fuels and, to some extent this is already happening. According to bloomberg, new energy finance, global renewable energy investment surpassed 500 billion dollars.
For the first time in 2020 and is expected to continue increasing over the next decade. At the same time, oil investment is expected to decline, as governments tighten environmental regulations and electric vehicles reduce oil demand. This sentiment has already been factored into the share prices of both renewable energy companies and oil companies alike. Over the past five years, the icln clean energy etf has handily outperformed the s p 500 returning 160 percent during the same time period.
The xle energy etf, which is comprised mainly of oil stocks, has significantly underperformed losing three percent of its value. The market appears to be pricing in a scenario in which global governments will finally get serious about fighting climate change over the next decade and fossil fuel companies will slowly die out. However, recent developments suggest that this view might be extremely naive. Overly ambitious emission reduction targets have caused catastrophic power shortages in both asia and europe, with over 100 million people in china currently facing severe electricity rations.
These shortages have exposed the harsh reality that the transition to renewable energy will take much longer than policymakers had originally hoped for. On the oil demand side, electric vehicles only made up two and a half percent of new vehicle sales globally in 2019 and will take multiple decades before they make up the majority of cars on the road counter. Counter-Intuitively oil companies may be the biggest beneficiaries of the shift to renewable energy. A lack of investment in oil exploration could cause a massive multi-year bull run in oil prices.
Over the past year. Electric vehicle stocks, such as tesla, have skyrocketed in value and for good reason. Evs are the future and their adoption is increasing rapidly in developed countries, but enthusiasm around evs has perhaps gotten out of hand, and even fraudulent companies like nicola have been able to achieve multi-billion dollar valuations. The transition to evs will take many years to gain serious momentum.
It will likely take multiple decades before they make up the majority of cars on the road. According to consulting firm mckenzie evs only made up 2.5 percent of global new vehicle sales in 2019. It is true that this number will increase substantially over time. However, the average vehicle stays on the road for about 12 years, even if evs took 100 market share of new vehicles starting today, it would take 12 years to completely eliminate internal combustion engine vehicles and even if every single new car buyer wanted to buy an ev, It would be physically impossible to supply them all, even today, with evs only constituting a few percentage market share of new car sales, lithium and cobalt producers are struggling to meet demand for ev batteries. Lithium prices have doubled since november of 2020, which is a big problem, because the battery is the most expensive piece of an electric vehicle. There simply isn't enough lithium supply at the moment to fuel a substantial shift to evs, and this will probably be the case for many years. At the same time, countries such as india, which has more than 1 billion people, are rapidly developing as these countries become richer. A greater share of their population will be able to afford cars, the vast majority of which will have internal combustion engines.
Increases in gasoline demand from india alone could easily offset the gradual shift to evs and developed countries for the next decade. Air travel also makes up a significant portion of oil demand, while this was dampened by the pandemic. Air travel is expected to grow substantially over the next decade, as poor countries become richer and more people use air travel for tourism. While there are some startups working on tiny electric planes, it's highly unlikely that we will see electric commercial long-haul flights within our lifetimes and imagine how big of a battery it would take to power a cargo ship from china to the us.
This is obviously a long ways off. Oil will continue to play a vital role in the global energy mix for decades to come. The international energy agency expects global oil demand to completely recover to pre-pandemic levels by 2022 and continue increasing from there. With most of this growth coming from developing countries, in fact, these estimates may even be conservative.
A little demand this summer in the u.s, china and europe have already exceeded 2019 levels. So what does this mean for oil prices just like any other commodity? The price is determined by supply and demand constrained oil supply, coupled with a strong rebound of demand from the pandemic. Lows have pushed oil prices well above pre-pandemic levels, and there is reason to believe that this trend will continue pushing prices up even higher over the next few years, when oil prices went negative in 2020, oil companies around the world significantly reduced their capital expenditures to conserve Cash according to market research, firm fitch solutions, capital expenditures from oil companies is expected to remain below 2019 levels until 2025.. Remember that oil demand is expected to recover to pre-pandemic levels by 2022., oil companies spend billions of dollars, drilling new wells and investing in new rigs. After a few years, these wells run dry and they must drill new wells to maintain their production. If oil companies want to maintain their production levels, they would need to increase their capital expenditures to above 2019 levels to make up for under investment in 2020, but they're doing just the opposite: they're cutting back on spending and letting their wells deplete. There are two main reasons for this: many esg focus investors are demanding that these oil companies invest in renewable energy. This reduces the amount of money that they will spend on oil and gas exploration.
In fact, earlier this year, an activist hedge fund, elected new members to exxon, mobil's board of directors to push for more green energy investment. Investors are nervous about the long-term future of oil and fear government climate change regulations. As we've explained early in this video, we think that this fear is far overblown and oil demand will increase for many years to come, but nevertheless, the market has punished oil stocks with dirt cheap valuations oil executives know that they aren't getting credit for investing in new Wells so they're, instead taking advantage of their cheap stock prices to buy back shares. These combined factors could very possibly lead to a situation where oil supply growth, undershoots demand growth significantly at current prices and when demand exceeds supplies, prices rise.
In fact, goldman sachs thinks that brent crude oil will increase to 90 per barrel by the end of 2021. On the back of strong demand, growth in supply constraints, one commodity that could benefit even more than oil - is natural gas. As countries decrease coal production in favor of renewable energy, they end up needing a lot more natural gas. This is because natural gas power plants can be quickly turned online when the wind is not blowing or the sun is not shining.
For example, the uk has invested billions of dollars over the past few years to build massive offshore wind farms in the north sea, which account for roughly 20 percent of the country's electricity generation in 2020. In 2021, wind speeds slowed down significantly and wind electricity generation was cut to just seven percent of total consumption. Utility companies used natural gas to fill in the gap, which has caused prices to surge, increasing, almost six volts since the spring. A similar situation is playing out in china.
Ironically, the shift towards renewable energy has made the world even more dependent on natural gas. This dependency will likely increase over the coming years, as countries gradually wean themselves off of coal. So what does this mean for oil and natural gas stocks? Oil stocks generally track the price of oil very closely when oil prices tanked in 2020, oil stocks fall on the way down. Oil prices, which are represented by the blue line, have rebounded strongly over the past few months and now sit squarely above pre-pandemic levels. However, the xle energy etf, which is represented by the red line, has lagged behind oil prices and is still below its 2019 levels. One major contributor of this is so-called esg. Investing many institutional investors, such as public pension funds, are divesting from fossil fuel related stocks, as they believe that this will help fight climate change. For example, blackrock ceo larry fink has committed to divesting from polluting companies in their actively managed funds if they do not improve their carbon footprint over the next few years.
Individual investors are also hopping onto the esg bandwagon, about one-third of millennials, often or exclusively use investments that take esg factors into account compared to 19 of gen z, 16 of gen x and 2 of baby boomers with so many investors dumping oil stocks. It's no wonder that they have lacked the broader market as well as oil prices. However, these esg focused investors may be making a massive mistake. In the long run, the only determinant of returns of the stock are its future cash flows.
It doesn't matter if blackrock and millennials refuse to buy it. In fact, it's actually good for long-term investors. If the stock price remains low because it allows oil companies to buy back their own shares at cheap prices and in the long run, shareholders can be rewarded with high dividend yields, even if their share price never appreciates. While this video is not financial advice, we think that many oil and natural gas stocks are significantly undervalued.
The favorable commodity price outlook and dirt cheap valuations could see this sector outperform the broader market over the next few years. Our favorite way to play this is with occidental petroleum, which is a highly cash generative company and offers leveraged exposure to both oil and natural gas prices. If you want to learn more feel free to read our research report on the company, this can be viewed for free on our public access, patreon portfolio link in the description below alright guys that wraps it up for this video. What do you think about the outlook for oil stocks? Let us know in the comments section below as always.
Thank you so much for watching and we'll see you in the next one wall, street millennial, signing.
only the guy with a brain of goat think EVs are the future
the future is something else
I've made 54k with a 70k investment in 40-ish oil stocks since June. Absolutely everything that has anything to do with EV's and their batteries ties back to oil. All the packaging for everything we buy ties back to oil.
If you really think about it, you gotta burn fossil fuel ~6-7 times before you can charge a Li-battery.
Like always….A very interesting topic, so from personal opinion view (not professional advice) ,better to buy OIL commodity (futures) and oil stocks companies such as Occidental Petroleum ?
This fundamental news is already getting priced-in in all corners of the markets. Even for forex traders we can all ready see a strong bullish momentum coming into the Canadian dollar due to their massive export of oil. oil commodity traders are also having a great time in the new rally.
This fundamental news is already getting priced-in in all corners of the markets. Even for forex traders we can all ready see a strong bullish momentum coming into the Canadian dollar due to their massive export of oil. oil commodity traders are also having a great time in the new rally.
the big problem is Kazachstan. These people have an absolute shitload of oil. but somehow noone wants to talk about the real amount.
And just like that, today the barrel of oil reached $80 USD; the highest since 2014. This WSM guy is… a freaking LEGEND!!!
The formations I drilled are much thinner, horizontal directional drilling, than the formations drilled by my grandfather, conventional vertical wells. We have been running out of oil since 1970 something.
Gas price has reached $5 per gallon in my area, at this rate $6 per gallon is possible. Oil to the moon
None of you are considering that you need oil to manufacture EVs, solar panels, and wind turbines.
While I do think your general thesis is true, the shift to EVs and the reduction in oil usage are not exactly the same thing. For instance, if 1 semi truck is replaced, at 100k miles per year at 10mpg, that's equivalent to 21 cars driving 12k miles/yr getting 25mpg. Since EVs are more economical, it's reasonable to think displacement will occur first on the least efficient gas vehicles and/or those driven the most miles. At 50% market penetration, EVs will likely have reduced gas usage far more than 50%. Up until now, we have seen mostly Tesla primarily offset relatively efficient cars like BMW 3-series. As they and other automakers move downmarket to taxi replacement cars (sub-Model 3), semi trucks (Tesla Semi), and light trucks (Cybertruck), fuel consumption may decrease dramatically.
When oil hits 0 BUY OIL STOCKS!!!! It won't stay low for long!!! The pandemic was the first time in human history this happened
This why the infrastructure bill should have been done years ago…
Damn you republicans
Solid analysis but I'd stay away from OXY given there are far better options, imho. There is a reason why it is on sale relative to it's peers and if you see a good oil market ahead you might as well buy the best company rather than the most inexpensive right now. For that reason I prefer COP, PXD, EOG or DVN.
Cheers!
This is pretty big for oil. If 98% of sales are combustion that means 98% for the next 10 years will be combustion since those cars aren't going away.
Also the US and developed countries need to make nuclear freighters.
It would reduce CO2 output a significant amount.
If oil prices have completely recovered, why is uco a uso not recovered from March 2020 levels?
Oil makes me a lot of money. This week alone I made enough money to buy a fancy house – that’s just this week. You could say that I got rich off oil. And, you can too, if only you give up on that climate change fairy tale.
Investing in crypto now should be in every wise individuals list. In some months time you'll be ecstatic with the decision you made today
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bEST STOCKS FOR THE FUTURE
LONG HOLD AND YOU WILL PROFIT 1000% GUARANTEED
WE ALL KNOW FORD AND LUCID WILL BLOW UP
LAC AND KANDI HAS A 50% CHANCE IT WILL BLOW UP
Demand for oil and Natural gas won’t rise to exorbitant levels in India in the next few years is mostly because India imports 90% of its energy needs which causes the country to have a trade deficit. As a result the government is actively trying to move away from fossil fuels and has made policies to blend ethanol with Petrol and diesel to decrease demand. The government is also investing in Hydrogen fuel cells. India is also one of the few countries that are poised to achieve their Paris Climate agreement. Same is true for China.
Cool video…agree with the summary, oil n gas companies are in an enviable situation, increased revenue to higher crude and gas prices, lower drilling and well development expenditure, due to negative market sentiments, cheaper share prices, enabling these companies to buy back their shares on the cheap and ..these operators continue to squeeze their suppliers , vendors and service company partners…in short …they are laughing all the way to the bank
Nuclear is the only energy that is clean to the environment. What these so-called environmentalists are asking are a myth and propaganda. If you think about the fad they are pushing, you'll realize that they are saving the earth by destroying it. lol
No, it will not be decades till they make up the majority of cars on the road. By 2035 95% of cars sold will be electric. So less than 2 decades for them to be a majority, maybe sooner.
Oil demand is going to stagnate. Yes Africa is going to increase use, yet everywhere else is turning down its use. Meanwhile governments are and will cut subsidies to oil. The US and China combined use 1/3 of the world's oil. Cut our combined use by 25%-50%, Africa cant afford that much oil at today's prices so they will fall.
Man made climate change is garbage 'science', yet I still want less pollution and more EV's. The carbon economy is designed to stifle countries into more control from the UN, IMF, etc. It is impossible that CO2 emissions increase heating because the Earth's atmosphere has always been 'saturated' with CO2 and is absorbing 100% of the reflected infrared wavelengths. That is why the mainstream media, etc will only call it climate change and not global warming anymore.
Unfortunately, this human civilization of ours is nothing but a massive heat engine. If you want to survive and flourish as a species then you have to burn the stuff that creates the energy that produces all of our worldly necessities. Homes, roads, food, medicine, schools, stores. All of our human basic needs require lots and lots of energy.
The real problem is that we are 8 billion people on a planet designed for far less. The global temperature began rising and reaching its critical point well before the time we were technically savvy enough to replace fossil fuels with other renewable sources. We still lack the knowledge to replace the many things that cause harm to us and all other life forms. It was just a few decades ago that we invented the EV and solar panels and we will still have to replace the products that need be replaced by other technologies going into the near future.
Throw into the mix the invent of modern day medicine that has accelerated our exponential population growth. And even If we had a more intelligent thoughtful and less emotionally triggered nature, we would still have had to come up with the solutions to many of our problems going back a hundred years.
Adding to this predicament, we have also chosen to rely on a greedy capitalistic, biased and racist way of conducting our lives. One that inevitably put us on a path towards unintended failure followed by the sixth mass extinction. Even If we made all the right decisions eons ago about how we treated each other and how we treated this planet, we might have positioned ourselves towards a sustainable path for a longer period, but eventually everything does deteriorate and die.
Here lies ahead the last real opportunity for all of us to look inside of ourselves and contemplate the bigger picture.What is the best way to move forward? How do we be treat each other in these last final years. Do we act barbarically or compassionately. And maybe we can search a bit deeper and ask the universe why after hundreds of thousands of years of human existence do we all find ourselves today looking dead ahead with clear vision and detailed specifics of our coming demise.
We are the only known species that has eyes that can see and a brain to wonder why.
The chances of you being born who you are and existing at this time in the cosmos is a virtual impossibly.
I find it so very profound that all of us will be experiencing this end of the human race together. We will be the last generation of human beings that will ever roam this earth. In hundreds of thousands of years from now there still will be no other humans around to find and dig up the artifacts of our spectacular existence.
Millions of years will pass. Microbial forms will slowly evolve into some other form of intelligent life capable of understanding who we were. Learning of our trials and tribulations. Our great works of art. Our diverse culinary, literature, music and colossal architecture. Our incredible technologies. The footprints that we left on neighboring planets. Every single one of our great achievements…
But by the time that comes around, our entire existence will have been completely washed away. It will all become nothing but fossilized goo… except for plastic.
It doesn't surprise me! Divesting without R&D into recycling, renewable development. I knew and know this to be true!
Thank you for your work. I have only been following you for a few weeks but have learned a lot. You really need to start factoring in the intensifying, cyclical Grand Solar Minimum. We are already seeing the fingerprints, floods, hail, lightning, disease, earthquakes, volcano's, ect. If there is no food everything else is moot. A hungry mob is an angry mob. (Agenda 21)
Stay safe eh:)
Give me one reason why EV is the future? Hydrogen is much more likely. At least for semis since weight limits exist and electric semis can't carry any cargo with current weight of batteries.
Not just climate change. Energy consumption is already rising due to inflation as well as EV/infrastructure plans. We saw how the WH closed down the pipeline early this year only to ask OPEC to pump more oil months ago. There's a lot of many other factors but you can never get rid of oil completely let's be real. Like take EV for example, there's hardly any incentives to buy it unless you buy it from a company that is part of a specific union. If you want a Tesla vehicle you dont get much here in NY compare to other brands that sell their EV but it ain't no Tesla 🤔 and even then machinery and etc needs oil to operate, to build. You'll need oil for one thing or another.
Oil isn't going anywhere. Anyone who knows anything about energy destiny knows gasoline is about as good as we get for human use, so far. Batteries MIGHT be able to work if we had 90% more nuclear power. Right now Batteries are just fossilfuels with a nice mask on.
also why nobody talks about he electric motorbikes ,chinese are flooding the world with that