I have never seen such a divergence between the Old World and the New World as I am seeing today, and, as is my wont, I would like to invest in it.
What's interesting is that in the past 500 years, the definitions of Old and New have completely flipped. When it comes to natural resources, the Old World is Western Europe and North America --consuming them, while attempting to demonize them -- and the New World is composed of countries that actually produce them. So, North America may have been the New World to an old Genovese-like Chris Columbus, but it is becoming Old in terms of natural resource production.
That's pretty sad, and God bless Texas, but the tea leaves are firmly in place.
Who better than OPEC to put it all in perspective, as in its 2020-2045 World Oil Outlook.
The fact that it is mostly European IOCs that are redirecting interest and investments towards renewables suggests that there is a 'cultural' element to their thinking. Perhaps this is more influenced by domestic debates, and also the realization that Europe by and large will see oil demand decline as it pursues greener policy initiatives set by both national governments and the EU.
In contrast, US IOCs and NOCs currently have less domestic pressure, and NOCs in emerging economies are more cognizant of the role they will have to play in meeting rising energy needs as their economies grow....One thing most IOCs arguably have in common is increasing difficulties to replace reserves, given lower prices, curbs on exploration budgets, investor pressure and environmental concerns.
That's it. Eureka.
That is the oil supply situation for the next 25 years. Sorted. On the demand side, OPEC's Monthly Market Report of June, published Friday morning, predicts solid year-on-year growth for oil in 2021 (5.95%) as the world manages the COVID pandemic. Even more intriguingly, OPEC's MMR now calls for an attainment of the 100 mmbpd global oil demand mark by the third quarter of 2022.
So, supply is under pressure by exogenous factors and demand just keeps on truckin'. Take that, Greta. You, too, Elon! Ha!
But it is supply that drives the bus, to use another transportation metaphor. A quick look at this chart (these are IEA data, not OPEC's) shows that oil demand grew steadily in the decade of the 2010s, and offers no hint of the horrible market crash that began with the disastrous OPEC meeting on Thanksgiving 2014.
So, just watch supply.
Again to quote OPEC's MMR:
Upstream investment in non-OPEC countries (in 2022) is expected at around $348 billion, a minor increase from 2020-2021 levels, but still only half of the $737 bn seen in 2013. The expected cumulative output from new projects has been decreasing, from 109 mb/d in 2013 to only 19 mb/d in 2021.
The lights are flashing green. If you can't see this, please review your Econ 101 textbook. I can't think of a better macro outlook for Exxon (XOM) and Chevron (CVX) . Overweight them in your portfolio. Now. If you want to hedge that exposure by shorting the newly "woke" Euro oil majors--Shell (RDS.A) , BP (BP) , Total (TTE) -- then feel free, to, but remember the thin end of the wedge of capitalism: the marginal suppliers. In 2012 and 2013 it was the "frackers."
In 2021, politics and economics have converged to produce a similarly benign outlook for the offshore players, especially in Guyana/Suriname and West Africa.
Here is my OHM Research Emerging Hydrocarbons list.
These TSX-V names are not for the faint of heart, but they are staring at an economic outlook that is just so darn rosy ... they are worth a flutter or two. Use the dividends (which are supported every day Brent sits above $70/bbl) you are getting from Exxon and Chevron to take stakes in these emerging plays.
It's time.
