Oil is in the news a lot right now because of what’s currently happening on the East Coast of the United States. There was a hack of an oil pipeline, and the hackers have since been identified, but the consequences of that hack are being felt by the company and by consumers.
Due to the hack, the pipeline shut down. This pipeline provides the East Coast with nearly half of its gasoline and jet fuel. As a result, gas, and oil prices have gone up, there are gasoline shortages, and consumers are behaving erratically. Some are hoarding gasoline. Others are chasing down supply trucks and are behaving in a way, akin to when an animal’s food supply is threatened.
With all that said, I do want to talk about oil today. Not just the recent news about the hack, but also the price of oil, the supply and demand dynamics, and what my thoughts on the future of the precious fossil fuel are.
Oil Price, Supply and Demand
The price of oil is back to pre-pandemic levels. Back in the early days of the pandemic, however, there was a tremendous shock to the system. Oil prices dove into negative territory because demand projections dropped.
Everyone started staying home due to Covid and mandatory quarantines, so demand dried up. A lot of analysts said that pre-Covid was peak oil demand. More people are going to work remotely, which means less commuting and less consumption. More businesses are going to conduct meetings via Zoom instead of flying to different locations, which also means less consumption.
Do I think the “pre-Covid era” was peak oil demand? I think so, but it’s difficult to say with certainty.
The future of oil
I do believe, however, that the overall demand for oil will trend down going forward. With that said, oil producers are focused on their bottom line. If they see demand trending down, they’ll be inclined to reduce production to protect the price per barrel from plummeting.
There’s another force at play here – clean energy. We will continue to see start-ups and agile new companies bring new technology to market. I think the runway for clean energy, in terms of growth and return potential, is very large. However, don’t count out the big energy companies quite yet.
These companies (Exxon, BP, Chevron, and the like) have been investing a lot of money in green/clean energy. They see the forces at play and they see the direction in which the market is going. It’s in their best interest to plan for an energy market dominated by renewables.
How should we invest?
That’s a good question and due to regulatory constraints, I can’t tell you specifically. Do I think there’s a place for oil in your portfolio? Maybe in the short-term, but not for long.
Investing in energy will be more nuanced than it has in the past. Big oil companies, as I mentioned, are investing in clean energy, but I believe renewable startups and green energy companies will attract the majority of investment.
Keep up to date with what’s happening in the energy market and do your due diligence when it comes to selecting investments.
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