Surging Oil Prices Will Tip Off the Renewable Reset
The global oil market is at a tipping point.
Earlier this year, oil prices trended higher on an increase in global demand.
But things really accelerated in the past month. Russia’s invasion of Ukraine has led to a massive rally.
Some would even call it a super spike.
The price of a barrel of crude jumped from $95 at the beginning of this month to $128 today.
The last time oil moved up this quickly was spring of 2008.
It had major repercussions for all financial markets. And it tipped off the financial crisis.
(Source: Trading Economics.)
Of course, banks and consumers aren’t as leveraged as they were back then.
Homebuyers with poor credit aren’t taking out “$0-down mortgages,” and bank capital ratios are much more stringent.
That’s why I believe this spike in oil will tip off something else…
Would You Pay $10 for a Big Mac?
Economics 101 teaches us that the cure for high commodity prices is high commodity prices.
While that sounds like something baseball legend Yogi Berra might have said, there’s truth to that statement.
Market prices are set by supply and demand.
As prices rise, producers add production. As they fall, they reduce production.
Consumers acts in the exact opposite way.
As prices rise, they buy less. Or they substitute the product for something else.
For instance, if the price of a Big Mac rose to $10, McDonald’s would try to make and sell more of them.
At the same time, consumers would either eat less hamburgers or head to the nearest Burger King.
So in the short term, the biggest beneficiary of a super spike in oil will be the oil companies.
But in the long term, renewable energy companies will see their businesses take off.
That’s because consumers will begin to substitute their gas cars for electric vehicles and power their homes with solar.
The Renewable Reset Is Coming Sooner Than You Think
Now more than ever, high oil prices are a catalyst for consumers, businesses and governments to find alternatives.
That’s why BloombergNEF sees renewables gaining the most market share over the next three decades.
It predicts that renewables will go from 20% to 50% of global electricity by the year 2035.
However, a number of powerful factors suggest that the transition could happen even faster.
First, renewable technology is getting better every year.
Solar panels are becoming more efficient at turning the sun’s rays into electricity.
Battery storage is getting cheaper and more abundant for consumers.
Thanks to the electric vehicle revolution, a lithium-ion battery is only a fraction of what it cost in 2010.
That makes it economically feasible for homeowners and businesses to buy solar power systems for their energy needs.
How to Buy Into the Future of Energy
One way to invest in this trend is with the Invesco Solar ETF (NYSE: TAN).
You can see here that the exchange-traded fund is about 50% off its early 2021 highs.
Investors should use this pullback as an opportunity to buy into the future of energy.
Editor, Strategic Fortunes
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U.S. Energy Corp. (Nasdaq: USEG) is an American oil and gas company. It is one of several oil and gas stocks that is up 64% today as oil prices soar with President Joe Biden’s announcement that the U.S. is going to ban Russian oil imports.
TMC The Metals Co. Inc. (Nasdaq: TMC) explores the ocean floor for nickel sulfate, cobalt sulfate, copper and manganese products. The stock is up 61% today as investors look for new sources of nickel amid a historic jump in nickel prices due to supply constrains from the war in Ukraine.
Voyager Therapeutics Inc. (Nasdaq: VYGR) develops treatments for patients suffering from severe neurological diseases. It is up 28% after Novartis entered a $1.7 billion licensing deal with Voyager for three capsids Voyager developed to use in potential gene therapies for neurological diseases.
PBF Energy Inc. (NYSE: PBF) is an American company that engages in refining and supplying petroleum products. It is another oil and gas stock that is up 25% on the news that the U.S. will be banning Russian oil.
Gevo Inc. (Nasdaq: GEVO) is a renewable fuels and advanced biofuels company. It is a up 23% as investors look to bet on sustainable and renewable energy sources amid the recent high oil prices.
SunPower Corp. (Nasdaq: SPWR) is a residential solar power solutions company. The stock is up 20% as solar energy starts to look more attractive than oil and gas in the current market and geopolitical conditions.
UroGen Pharma Ltd. (Nasdaq: URGN) develops and commercializes novel solutions for specialty cancers and urologic diseases. The stock is up 19% after securing $100 million in non-dilutive term loan financing to continue funding its operations.
Aemetis Inc. (Nasdaq: AMTX) operates as a renewable natural gas and fuels, and bio-chemicals company. Much like Gevo Inc., it is up 19% as investors turn to oil and gas alternatives in the interim while traditional oil prices remain high.
Consolidated Communications Holdings Inc. (Nasdaq: CNSL) provides telecommunications services to business and residential customers in the U.S. The stock is up 17% on the news that private equity, Searchlight Capital Partners is evaluating the possibility of acquiring the company.
ITM Power Plc (OTC: ITMPF) designs, manufactures and sells hydrogen energy systems for the energy storage, transportation and industrial sectors. It is up 16% today because it is another angle on renewable energy investments as oil and gas prices rise.
My career on Wall Street started while I was in college. I spent a summer interning for Merrill Lynch in the middle of the ‘90s bull market. I was fascinated with trading, and as a result, after college, I joined Salomon Brothers in the famed mortgage bond trading department. Later, I spent time at Citigroup working with credit derivatives. Eventually, I needed to walk away from the excess of Wall Street. That’s when I joined Banyan Hill in 2017. Now I help readers get ahead of the market and build their retirements.