Low Long-term Oil & Gas Production
Updated: Oct 20, 2021
Last week was very volatile for the stock market. Raising the debt limit is a national past-time. However, it’s different this time as the debt limit is being used to negotiate 2022 infrastructure and social spending bills. Jerome Powell also stated that the "transitionary" inflation might be a little more persistent than anticipated.
Oil & Gas in Short Supply
The oil and gas industry has been one of the hardest hit by COVID. Demand dropped so much that investors (futures market) had to pay companies to take their oil at one point. THE PRICE WENT NEGATIVE!!! Oil companies responded by cutting CAPEX spending, offering early retirement, and reducing expenses.
Additionally, countries and activist investors are pressuring the oil companies to spend more money on green energy. Royal Dutch Shell (RDC) lost a court ruling in The Hague, which requires the company to reduce its carbon footprint by 45% by 2030. This seems a bit ambitious and could hurt the global oil supply.
Engine No. 1, targeted American firm Exxon (XOM) to force them into investing in “green energy.” Engine No. 1 is a hedge fund whose function is to promote environmentally sound business practices. They own $40 million (.02%) of Exxon stock and spent a whopping $12.5 million on a campaign to elect three environmental board members. Engine No. 1 influenced the sizeable institutional investment companies of Fidelity, Vanguard, and Black Rock to vote in their favor. As a result of the new board members, I assume Exxon will shift money dedicated to oil & gas production over to green energy initiatives.
China's Unstable Power Grid
China is already experiencing blackouts as it transitions to green energy sources. China favors natural gas over coal power plants to promote cleaner air. While natural gas is a much cleaner fuel, China may have miscalculated the natural gas supply available to them. Natural gas prices have increased from $5/million BTU to $29/million BTU. China is switching from burning natural gas to oil and firing up old coal plants to stabilize its electric grid. Their energy grid has become such a big problem that it actually closed an iPhone factory…..OMG. Furthermore, President Xi Jinping instructed their companies to secure as much energy as possible at all costs. 7170
Black Rock’s iShares Real Estate Sector (XLRE) was up 3.54%, making it the best performing ETF last week. XLRE provides exposure to real estate by owning real estate management & development companies and real estate investment trusts (REITs). However, it does not own any mortgage REITs. The top five holdings are American Tower (cell phone towers), Prologis (Industrial), Crown Castle (cell phone towers), Equinix (digital infrastructure), and Public Storage (storage).