By Kris Sayce, editor, Casey Daily Dispatch
In yesterday’s Dispatch, we began our week-long look at energy.
To be precise – oil.
It’s a sector that’s had its fair share of ups and downs… Both in price action and popularity.
Experts have warned of oil scarcity… soon followed by warnings of an oil glut (often coming from the same experts).
Either way, what they often forget is advice on how to profit from these market distortions.
We won’t make the same mistake.
If you’re new to this letter, welcome to the Dispatch. And if you’re a regular reader, welcome back.
We have two main goals here:
To introduce you to the most important investing themes of the day, and
To show you how to profit from them.
We do this by showcasing ideas from in-house investing experts Dave Forest, Nick Giambruno, and the founder of our business, Doug Casey.
Today, we turn to Dave Forest…
Still the Best Way to Maintain Our Way of Life
In the May issue of Strategic Investor, Dave wrote:
Oil is trading over $60 per barrel as we write. It’s in an uptrend despite all of the green initiatives going on around the globe. Electric vehicles and clean energy may have their day in the sun, but fossil fuels still are the best way to maintain our way of life today. That will hold for years to come.
That was back on May 5. Today, oil trades at $71 per barrel.
And if Dave’s analysis on the oil market is right, look out for the oil price to climb even higher.
It looks as though the market is following Dave’s lead. As OilPrice.com notes:
Money managers reduced their bullish bets on the six most important petroleum contracts, but they bought more WTI Crude futures in the week to May 25 amid strong fundamentals for the U.S. benchmark, according to exchange data compiled by Reuters market analyst John Kemp.
And Bloomberg reports:
There were expectations a deal to lift Iranian oil sanctions would be in place ahead of the vote [in Iran’s presidential election], said Giovanni Staunovo, a commodity analyst at UBS Group AG. “That seems not to be the case anymore.”
Oil has surged in recent weeks as road traffic in the U.S. and Europe increase with more people vaccinated against COVID-19. American daily air travelers topped 2 million for the first time since the pandemic began. That’s boosting oil demand, which may already be high enough to absorb any additional supply into the market, Staunovo said.
We pointed out some of the fundamental reasons for oil’s rise yesterday. That reporting and data backs this view.
(By the way, we’ve asked colleague Imre Gams to look at oil from a technical analysis view. We’ll have that for you tomorrow.)
Below, we’ll share another reason.
All This and Still Oil Is Coming Back
The truth is, as much as the world increases its use of non-fossil fuels, oil is still a big part of the world’s energy supply and demand.
That won’t change overnight. Check out the following chart to see what we mean.
It shows the average daily crude oil demand worldwide from 2006 to 2026. Everything up to the end of 2020 is actual demand. Everything from 2021 onward is a forecast.
In 2019, the worldwide average daily demand for crude oil was 99.7 million barrels. In 2020… with two of the world’s biggest economies (the U.S. and European Union), in effect, shut down… demand was still 91 million barrels per day.
That’s despite a 31.4% drop in GDP during the second quarter of 2020 in the U.S.
That’s despite airline traffic falling 65.9% for the whole of 2020.
That’s despite motor vehicle traffic falling 13% in 2020.
Despite all that, worldwide oil demand fell less than 10%. And by the end of 2022, the International Energy Agency forecasts average daily demand will be back to where it was in 2019.
You can see why Dave Forest is so excited about the oil story. Not just for this year, but for the next five to 10 years… perhaps longer.
We know, forecasts can be wrong. After all, no one forecast that COVID-19 would strike down economies in 2020.
But we’re looking at the fundamentals for oil. We’re looking at the demand, which is already on the way back up. And as we noted yesterday, we’re also looking at the potential issues as government red tape and shareholder activism put a dent in supply.
To sum up, regardless of the “hot” headlines about green energy and electric vehicles, this is still an oil world. And that’s why Dave is convinced that now is the perfect time for investors to add oil stocks to their portfolio.
Editor, Casey Daily Dispatch
P.S. Want to know how to play it? Dave believes every investor (every investor) should have some exposure in their portfolio. But Dave also believes that investors should take advantage of a little-known type of stock that helps investors boost their returns, without taking unnecessary risks. For details, go here.