Oil and Gas

The Sun Is Setting on Oil and Gas Stocks

It may be hard to believe, but there’s a big crude oil shortage coming.

And it’s going to drag on your portfolio if you own anything related to the oil and gas sector.

Some of you may think I’ve lost it. But hear me out…

Your portfolio could be about to take a big hit as oil tanks. The current crude surplus and the upcoming shortage will take down even more oil and gas companies.

So keep reading to see why oil and gas stocks are done for.

States Backpedal Upon Reopening

As states have reopened, folks have started to congregate in large crowds again. And many individuals are viewing this as the green light to abandon face masks.

As a result, the number of new COVID-19 cases has soared.

According to the World Health Organization, last Sunday was the biggest single-day increase in new coronavirus cases. It tallied more than 183,000 new infections around the globe.

The surge in cases isn’t just the result of more testing. It’s because crowds are perfect places for the virus to spread.

The U.S. is now the No. 2 country behind Brazil in new infections.

A few towns and businesses that have reopened are starting to backpedal. Apple (Nasdaq: AAPL) is reclosing 11 stores in Arizona, Florida, South Carolina and North Carolina.

According to experts, this isn’t the much-anticipated “second wave.” These new cases are still part of the first wave.

With many Americans still under stay-at-home orders, demand for crude oil has remained depressed. No wonder crude oil stockpiles have surged to record two-week highs.

Big Oil’s Already in Big Trouble

The resurgence in cases is quickly throwing cold water on states’ efforts to reopen. And that’s not good news for the oil sector.

And I’m not the only one who thinks so. The International Energy Agency is predicting a “historic plunge in global energy investment.”

It puts the blame squarely on the coronavirus. And the agency expects global investments in energy to plummet by 20%, or nearly $400 billion, in 2020.

Many nationalized oil companies are in dire straits. Their countries’ coffers have few funds available for drilling.

American shale companies are going to take the biggest hit, falling 50% in 2020.

As a result of the coronavirus, the global oil industry could shrink by more than $1 trillion. And that’s just this year.

Some investors may decide that it’s the perfect time to invest in downtrodden U.S. exploration and production (E&P) companies. But that could be a costly mistake.

The Coming Oil Shortage

There is more hurt coming to oil. Peak crude demand is being expedited by the pandemic.

No money means no exploration, especially in remote, offshore areas. Rystad Energy estimates that the lack of exploration has reduced global recoverable oil by 282 billion barrels.

The U.S. alone could lose 49 billion barrels. About 42% of the remaining recoverable crude is in OPEC countries.

There are longer-lasting, disruptive changes coming to the energy markets. The coronavirus has also sped up the transition away from fossil fuels.

In April, global crude demand plummeted by 29 million barrels per day. We haven’t seen that level of demand since 1995.

And yet, the lack of available production could spell shortages by next year. And many producers won’t be able to respond due to a lack of funds.

Remember, banks, hedge funds and large endowment funds are shying away from oil and gas investments. So are insurance companies.

They are moving their investment dollars elsewhere. But where is the money going?

Renewable energy.

According to Goldman Sachs, investments in 2021 in renewable power generation will be “surpassing upstream oil and gas [E&P companies] for the first time in history.”

Solar and wind energy, energy storage, and EVs are rapidly disrupting our energy and transportation sectors.

We are leaving the fossil fuel era and entering the electrification era.

Make sure your portfolio has the right energy and transportation companies in it to profit from this shift.

Good investing,

Dave