Are Oil companies a good investment?
Fossil fuels are the cornerstone of our industrialized modern world.
Some 80 percent of the global energy supply still comes from fossil fuel resources – crude oil, natural gas, and coal. Fossil fuels originated from dead plants and animals in geologic prehistory. In fact, these decomposed products saved the solar energy during that process in a way that it could be exploited and utilized.
As distinct from fossil fuels, biomass consists of contemporary organic waste and rests. Fossil fuels, on the other hand, are a main cause for some of the world’s urgent problems – climate change and global warming.
The technical exploitation of fossil fuels in the 18th and 19th century was a crucial requirement for the industrial revolution.
Some of today’s largest companies trace their roots back to those times. Texas-based oil and gas giant ExxonMobil, is a direct descendant of legendary John D. Rockefeller’s Standard Oil company, founded in 1870.
The same is true for top U.S. coal mining companies like Peabody Energy and Consol Energy, which were founded in the 1880s and 1860s, respectively.
Average annual OPEC crude oil price from 1960 to 2018 (in U.S. dollars per barrel)
Retail price of regular gasoline in the United States from 1990 to 2017 (in U.S. dollars per gallon)
Why I am bearish on Oil prices?
The marginal cost to produce an additional barrel sits around $45, therefore, price should tend to this equilibrium
The growth rates are genuinely amazing, with Chevron adding +150kboed YoY in the Permian, with 27 rigs operating. Exxon is +130kboed YoY, with 38 rigs operating, half in the Midland, half in the Delaware, but the latter are almost all drilling DUCs for now.
The US Super-Majors, Exxon and Chevron, both surpassed the upper range of their Permian guidance in 3Q18, coming in almost exactly in line with our Sep17 forecasts
(from Redburn, a financial brokerage firm)
Fracking at the Permian bassin
In H1-2019 and H-2019, new pipelines will allow to bring more oil to the market while consumption seems to grow slower than expected
Therefore after a good 2018 run, I would stay away from Oil-linked companies
Source: https://www.statista.com/markets/410/topic/444/fossil-fuels/
What do you think?
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As the rest of the planet literally "lights up" and beings to access electricity, there is no doubt that fossil fuel usage most likely from shale and fracking will increase in certain situations. What's more likely however, is that a traditional grid system, as well as fossil fuel powered transit systems will be by-passed altogether and renewables will be built on mass scale. Zero Marginal Cost technology will always tend to win out in the long run. Great post!
Agreed ! In the long term efficient grid and renewables will come on top.
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another couple decades, oil industry will become sunset industry. i would suggest invest in green energy.
Very nice post and I agree with your assessment on oil. I'm watching the $54 level on oil.
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