{"id":8247,"date":"2019-09-23T18:11:36","date_gmt":"2019-09-23T18:11:36","guid":{"rendered":"https:\/\/zackspcg.com\/blog\/?p=8247"},"modified":"2022-02-26T13:07:09","modified_gmt":"2022-02-26T13:07:09","slug":"oil-shocks-and-the-future-of-energy-investments","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/oil-shocks-and-the-future-of-energy-investments\/","title":{"rendered":"Oil Shocks and the Future of Energy Investments"},"content":{"rendered":"\n<p>The oil markets were rattled last weekend (and into Monday)\nwhen news reports confirmed that Saudi Arabia\u2019s oil giant, Aramco, had suffered\nattacks at their Abqaiq oil-processing facility. The destruction removed some\n5.7 billion barrels a day out of production, which represents approximately\nhalf of Saudi Arabia\u2019s total output and nearly 5% of global supply.<sup>1<\/sup>\n<\/p>\n\n\n\n<p>The response in the oil market was nearly instantaneous \u2013\nthe price of Brent crude soared +15% to $69.02 when the market opened on\nMonday, posting its largest one-day gain since 1988.<sup>1<\/sup> <\/p>\n\n\n\n<p>30 years ago, alert investors may have seen this event as an\nopportunity to enter the energy trade, anticipating that an attack of this size\nwould lead to sustained higher oil and gas prices. And in many cases, they\nwould have probably been right. <\/p>\n\n\n\n<p>But I would argue today that immediate and widespread access\nto information has made markets far more efficient at pricing these types of\nsupply shock events. The end result, in my view, <em>is a near instantaneous reflection in prices<\/em>, which totally\nundermines a strategy of going long energy in the wake of a supply shock. <\/p>\n\n\n\n<p>Another factor that\u2019s much different today than it was 30\nyears ago is technology. Where an attack of this size may have led to months of\nsupply disruptions in the past, today the recovery times have been narrowed to just\ndays and weeks. Indeed, within a day of the attacks on Aramco, Saudi Arabia\u2019s\nEnergy Minister assured markets that oil output would be fully recovered within\nweeks, with a target date of the end of September. By Tuesday, Aramco had\nalready restored 50% of lost production, and oil prices retreated back to\naround $60 a barrel.<sup> 1<\/sup> Trading on the news, in this case, meant only\nparticipating in the downside.<\/p>\n\n\n\n<p><sup>______________________________________________________________________________________________<\/sup><\/p>\n\n\n\n<p><strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2019_9_23&amp;content=stock_market_outlook_report \">Economic Indicators You Should Keep an Eye On!<\/a><\/strong><\/p>\n\n\n\n<p>Instead of trading on news, I suggest avoiding the urge to\nget caught up in day-to-day movements, and instead focus on economic data\nreleases, earnings reports, and other economic factors! To help you do this, I\nam offering all readers a first look into our just-released <strong>October 2019\nStock Market Outlook report.<\/strong><\/p>\n\n\n\n<p>This report will provide you with our forecasts along with\nadditional factors to consider:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>Can a U.S. stock market bounce back this\nfall?<\/em><\/li><li><em>Why are Zacks strategists (including me)\nstaying bullish?<\/em><\/li><li><em>Stock market returns expectations for 2019<\/em><\/li><li><em>Stock market returns expectations<\/em><\/li><li><em>What of U.S. GDP Growth?<\/em><\/li><li><em>Returns for Small, Mid, and Large Cap stocks<\/em><\/li><li><em>And much more.<\/em><\/li><\/ul>\n\n\n\n<p>If you\nhave $500,000 or more to invest and want to learn more about these forecasts,\nclick on the link below to get your free report today!<\/p>\n\n\n\n<p><strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2019_9_23&amp;content=stock_market_outlook_report \">IT&#8217;S FREE. Download the Just-Released October 2019 Stock Market Outlook<\/a><sup><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2019_9_23&amp;content=stock_market_outlook_report \">2<\/a><\/sup><\/strong><\/p>\n\n\n\n<p><sup>______________________________________________________________________________________________<\/sup><\/p>\n\n\n\n<p>The last thing investors must remember is that Saudi Arabia\nis no longer the world\u2019s largest oil producer. The United States is.<sup>3<\/sup>\nSo, while an attack on a critical oil production facility in Saudi Arabia is no\ndoubt a negative, the United States (and others) have the capability and the\nsupply to keep prices stable \u2013 if doing so is the desired result. In this case,\nthe U.S. offered to do just that, but in the end, it wasn\u2019t even necessary. <\/p>\n\n\n\n<p><strong>The United States is\nthe World\u2019s Biggest Oil Producer <\/strong><\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2022\/02\/2019-9-21-image-1-of-3-1024x677.png\" alt=\"\" class=\"wp-image-8248\"\/><\/figure>\n\n\n\n<p><strong><em>Source: Energy Information Administration<sup>3<\/sup><\/em><\/strong><\/p>\n\n\n\n<p><strong>Another\nApproach to Energy Investing<\/strong><strong><em><\/em><\/strong><\/p>\n\n\n\n<p>Short-term oil shocks make a difference, but long-term\nsupply and demand trends are what drive prices over time, in my view. And that\u2019s\nwhere investor focus should be.<\/p>\n\n\n\n<p>When thinking about long-term demand for oil,\nthe key in my view is to look at trends in petroleum and distillate fuel oil\nconsumption. Petroleum is the largest&nbsp;U.S. energy source, and we use\npetroleum products to propel vehicles, to heat buildings, and to produce\nelectricity.&nbsp;<\/p>\n\n\n\n<p>According to the U.S. Energy Information Administration\n(EIA), in 2017 the consumption of finished motor gasoline averaged about 392\nmillion gallons per day, which was equal to about 47% of total U.S. petroleum\nconsumption.<sup>4<\/sup> <\/p>\n\n\n\n<p>Next\nin line was diesel fuel, which is used to power diesel engines of heavy construction equipment, trucks, buses, tractors,\nboats, trains, some automobiles, and electricity generators. The EIA says that\ntotal distillate fuel oil consumption in 2017 was equal to about 20% of total\nU.S. petroleum consumption.<sup>4<\/sup><\/p>\n\n\n\n<p>These two sources of consumption\u2014petroleum\nand distillate fuel oil\u2014account for nearly two-thirds of U.S. consumption\ntoday. The question is, where will it be 10, 20, or even 50 years from now?<\/p>\n\n\n\n<p>Recent trends suggest that long-term investors may want to\nthink about a diversified portfolio of energy companies versus an energy\nallocation exclusively focused on oil. While I\u2019d venture to say that oil will\nremain the primary energy source for decades to come, the rise of electric\nvehicles and falling costs of renewable energy sources are a dual threat to\nlong-term profits in the industry. <\/p>\n\n\n\n<p>As you can see in the chart below, the EIA estimates that\nliquid fuels (derived from oil) should remain the top source for energy use in\nthe U.S. through 2050, but the biggest leaps in market share come from natural\ngas and renewables. Oil is no longer the only game in town.<strong><em><\/em><\/strong><\/p>\n\n\n\n<p><strong>Liquid Fuels May\nContinue Dominating, but Natural Gas and Renewables Should Gain Market Share\nOver Time<\/strong><\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2022\/02\/2019-9-21-image-2-of-3.png\" alt=\"\" class=\"wp-image-8249\"\/><\/figure>\n\n\n\n<p><strong><em>Source: Energy Information Administration<sup>5<\/sup><\/em><\/strong><\/p>\n\n\n\n<p>Proven reserves for natural gas here in the United States\nare enormous, and within the renewable energy space, solar and onshore wind\nturbines saw the largest price declines between 2009 and 2017. Solar panels got\n76% cheaper and turbine prices fell 34%, actually making them competitive\nalternatives to fossil fuels for the first time in history.<sup>6<\/sup> <\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2022\/02\/2019-9-21-image-3-of-3-1024x533.png\" alt=\"\" class=\"wp-image-8250\"\/><\/figure>\n\n\n\n<p><strong><em>Source: Energy Information Administration<sup>6<\/sup><\/em><\/strong><\/p>\n\n\n\n<p><strong>Bottom Line for\nInvestors<\/strong><\/p>\n\n\n\n<p>Oil remains on the top of the energy pyramid, and it is\nlikely to remain there for decades to come, in my view. But oil\u2019s position at\nthe top is far from assured over the long term. Investors should continue to\nwatch trends in natural gas, wind, and solar, particularly as natural gas and\nwind are seen as the two fastest growing energy sources in the U.S.\u2019s energy\nportfolio. With rapid changes in technology likely to reduce demand for oil,\nand with natural gas and wind emerging as viable alternatives, a diversified\napproach to energy investing makes the most sense for long-term investors, in\nmy view. <\/p>\n\n\n\n<p>In addition, I recommend staying focused on the entire market picture instead of trading on the news. To help you do this, I am offering all readers a first-look into our <strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2019_9_23&amp;content=stock_market_outlook_report \">Just-Released October 2019 Stock Market Outlook Report.<\/a><\/strong><br> <br> This Special Report is packed with our newly revised predictions for 2019. For example, you&#8217;ll discover Zacks\u2019 view on:\u00a0<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>For how long will 2019 stay bullish?<\/em><\/li><li><em>Zacks global markets\u2019 outlook<\/em><\/li><li><em>What sectors show the best opportunity?<\/em><\/li><li><em>What industries within those sectors most merit your attention?<\/em><\/li><li><em>Forecast for the S&amp;P<\/em><\/li><li><em>Small-cap vs. large-cap returns<\/em><\/li><li><em>And much more.<\/em><\/li><\/ul>\n\n\n\n<p> If you have $500,000 or more to invest, learn how you may be able to prepare your portfolio for changes in the economy by reading this new report today.<strong><sup>7<\/sup><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>A look at the effects of short-term disruptions and oil\u2019s long-term prospects<\/p>\n","protected":false},"author":3,"featured_media":7430,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[1],"tags":[],"class_list":["post-8247","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8247","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=8247"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8247\/revisions"}],"predecessor-version":[{"id":10705,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8247\/revisions\/10705"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=8247"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=8247"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=8247"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}