Conflicting experiences about oil demand within the coming a long time … why you don’t must make a binary wager … the hyperlink between fossil fuels and renewables … methods to play it
In accordance with OPEC, oil demand goes to soar within the coming a long time.
Nonetheless, in line with the Worldwide Power Company (IEA), oil demand is headed decrease.
Now, it’s a bit apparent that OPEC would have a bias towards a bullish report. It’s a bit like a thermal underwear firm conducting a research and concluding that temperatures are going to be actually, actually, actually chilly this coming winter!
However even factoring that in, the starkly completely different visions of the long run outlined by these experiences raises an eyebrow.
The OPEC research concludes that world oil demand will rise to 110 million barrels a day in about 20 years.
That is at odds with the IEA’s report that predicts a serious slowdown in demand. Right here’s CNBC with the IEA’s longer-term forecast:
International oil demand development will trickle practically to a halt within the coming years and peak this decade, in line with the Worldwide Power Company, with Chinese language consumption set to decelerate after an preliminary pent-up restoration.
“The shift to a clear vitality financial system is choosing up tempo, with a peak in world oil demand in sight earlier than the top of this decade as electrical autos, vitality effectivity and different applied sciences advance,” IEA Government Director Fatih Birol mentioned in a press release.
Oil demand development that “will trickle practically to a halt” sounds a bit far-fetched. The exact same IEA predicts oil demand in India, which can have simply handed China because the world’s most populous nation, will develop 42% between 2021 and 2030.
Regardless of that time, we’re not going to make the case for, or towards, oil in immediately’s Digest. OPEC’s personal Secretary Basic, Haitham Al Ghais, summed up our tackle it just a few days in the past:
Fuel hydro, nuclear hydrogen and biomass will increase. However it’s clear that oil stays an integral a part of the combo.
To us, the extra essential query is “how will we make robust funding returns no matter whether or not oil stays the world’s important vitality supply within the coming a long time, or if renewables take heart stage?”
One reply is we’d want to search out firms which have publicity to income from each fossil gas vitality and renewables – a “have your cake and eat it too” method.
And this factors us towards one thing you’re most likely not anticipating.
Lithium.
Prepare for the “nice diversification” from the oil and gasoline majors
How on the planet does lithium assist buyers get publicity to income from each fossil fuels and inexperienced vitality?
It’s a three-part reply.
Right here’s Half I from Power.gov:
A comparatively uncommon factor, lithium is a smooth, gentle steel, present in rocks and subsurface fluids known as brines. It’s the main ingredient within the rechargeable batteries present in your telephone, hybrid vehicles, electrical bikes, and even giant, grid-scale storage batteries.
As a “crucial mineral” crucial for rechargeable electrical batteries, lithium has been recognized as a fabric important to the financial or nationwide safety of the US.
Right here’s Half II from The White Home:
Because the world transitions to a clear vitality financial system, world demand for…lithium and graphite utilized in electrical car (EV) batteries…will improve by…as a lot as 4,000 p.c.
And right here’s Half III from Monetary Occasions, which brings all of it collectively:
Oil and gasoline majors are stepping up efforts to interrupt into lithium to diversify past fossil fuels as hopes rise over a technological breakthrough to provide the steel crucial for electrical automotive batteries.
ExxonMobil, Schlumberger, Occidental Petroleum and Equinor are exploring whether or not their core abilities of pumping, processing and reinjecting underground fluids comparable to oil and water may very well be deployed to course of lithium from unconventional brine assets, serving to to ease the forecast shortages of a fabric anticipated to be important for the vitality transition.
So, the bridge between fossil fuels and inexperienced vitality is lithium. And the standard oil/gasoline firms pursuing lithium publicity supply buyers this two-pronged vitality method.
How will we put money into it?
Monetary Occasions simply supplied 4 names of oil firms which can be pursuing lithium publicity: ExxonMobil, Schlumberger, Occidental Petroleum, and Equinor.
However our macro skilled and editor of Funding Report, Eric Fry, has steered a fifth:
TotalEnergies SE (TTE).
Right here’s Eric talking on to our vitality purpose of getting our caking and consuming it too:
[TTE] is a fashion-forward, energy-transition firm. The corporate’s administration understands each what has been and what will be – and so they intend to maximise revenue from each.
Particularly, administration is pursuing a long-term technique to reinvest the strong money flows from Whole’s legacy oil and gasoline operations into renewable vitality initiatives and applied sciences.
Now, whereas we are able to infer that lithium performs a task this transition, it’s in a roundabout way apparent. Can we get larger verification?
Right here’s PowerTechnology.com from earlier this spring:
TotalEnergies has introduced the launch of its largest battery vitality storage undertaking in Europe…
TotalEnergies battery subsidiary Saft will provide 40 Intensium Max Excessive Power lithium-ion containers for the undertaking, which is about to come back on-line by the top of subsequent 12 months.
It seems “sure” – as Eric steered, TotalEnergies is smack-dab in the course of each fossil fuels and lithium-related renewables.
By the way in which, a giant congrats to Eric’s Speculator subscribers who’re up 112% of their TotalEnergies name possibility.
(And although not associated to immediately’s matter, a second, even greater congratulations for his or her 220% return on their Amazon calls that they closed out final Friday. To study extra about this elite buying and selling service from Eric, click on right here.)
Now, you is perhaps scratching your head, pondering “why don’t we simply put money into lithium firms immediately?”
Nice concept!
In any case, many of those oil and gasoline majors would possibly resolve to associate immediately with a top-shelf lithium producer, or simply take a serious stake in a single.
For instance, again in 2021, Equinor turned a partial proprietor of Lithium de France, and Occidental has a chunk of TerraLithium.
So, which lithium firm would possibly you think about?
Nicely, common Digest readers will acknowledge one identify since we’ve an open commerce on it…
Albemarle.
In late-April, we really helpful Digest readers think about a commerce on this world-class lithium firm. You’ll be able to re-read that Digest right here , however briefly, after Chile’s President Gabriel Boric introduced his plans to nationalize the nation’s lithium trade, ALB tanked 10%.
We famous this made no sense for a few causes…
First, ALB administration mentioned the information could have “no materials affect on our enterprise” (it’s positioned in Charlotte, North Carolina).
Second, if something, ALB ought to have climbed because it’s one of some U.S.-based lithium firms, and as The New York Occasions just lately reminded us, “the Biden administration…has allotted billions of {dollars} to encourage firms to develop lithium mines and refineries in the US or in international locations with which it shares shut political and financial ties.”
In any case, the kneejerk 10% selloff resulted in massively oversold situations in Albemarle’s inventory in line with its Relative Power Index (RSI) stage.
We noticed the potential for short-term good points from a mean-reversion rally, mixed with long-term good points from the identical lithium development story we’ve highlighted in immediately’s Digest.
So, what’s occurred since?
Albemarle jumped out of the gate after our advice, and about one month later, it was up 20%.
We steered that short-term merchants might take some income off the desk as a result of ALB’s RSI stage had hit a peak and turned south. This steered that some short-term weak spot may very well be within the playing cards.
However for longer-term buyers, we really helpful no motion. From that Digest:
Nonetheless, in the event you jumped into ALB based mostly on the general lithium development story, dangle tight. We imagine the long-term good points are simply getting began, although they gained’t be coming in a straight line.
As you’ll be able to see beneath, issues performed out as we anticipated.
ALB did, in truth, pull again briefly, solely to then proceed climbing. The commerce is up 30% since our advice.
Supply: StockCharts.com
We proceed to imagine there are extra good points to come back for the ALB commerce as world demand for lithium intensifies.
Coming full circle to the beginning of immediately’s Digest, the place will world oil demand be in twenty years?
We don’t know. Fortuitously, we don’t must know.
There are smart investments you may make immediately that may provide help to generate robust returns regardless. You simply must give attention to the vitality firms that may generate wholesome money flows no matter whether or not fossil fuels or renewables ultimately rule the day – and/or give attention to the main lithium producers that may assist vitality firms straddle the fence.
Have an excellent night,
Jeff Remsburg
