$6 Gas & Clean Energy - self-fulfilling cycle

Macro Perspectives: Fri 21 Mar 2021

The Fed minutes (Wednesday) indicated that they continue to view the risks to the economy as skewed to the downside - a greenlight - as stocks have roared back 2.5% from the day's lows.

What's taking a breather in the past week, is commodities (excluding gold). The CRB Index which tracks a broad basket of commodities is down about 5% from a week ago; among the high flyers in commodities, copper is down 7.5% from a week ago and oil has been the hardest hit.

Let's take a look at the chart on oil...

After a near double from election day, oil has been unable to break the big $67 - $68 area, but with that huge move, energy stocks have been the biggest winners on the year, from a sector perspective.

Yesterday, the energy sector (XLE) was the only sector in the red in the S&P 500.

Why? The news of the week has been negative for oil prices and it's been supply related. First, there were rumors early in the week that the U.S. may lift sanctions on Iranian oil exports, then Biden waived sanctions on a Russian pipeline company working in Europe.

This dip in the energy/oil and gas sector is a buy.

The globally coordinated "Clean Energy Revolution" promotes higher oil prices, not lower - that's the structural driver for oil prices. Funding for new exploration has been choked off, putting foreign oil producers in the driver’s seat. That movement is underway and these producers will command/demand higher prices, especially in a less competitive, lower supply world.

As we discussed this dynamic back in February, I said "get ready for $4 plus gas." With the monetary and fiscal backdrop that has evolved, and the inflationary pressures already bubbling up, it will probably be more like $6 gas. It will be self-fulfilling, and yet it will become the justification for the move to "clean energy" (just as high gas prices were in the Obama era).