I’ve been trading financial markets for a quarter-century now.
I thought I had seen it all…
The dot-com boom-and-bust, the housing crash, the financial crisis, crypto mania and most recently, the coronavirus crash, which saw major indexes drop 35% in less than a month.
I’ve had prime seats for each of these events, as either a trader or a writer.
However, this week’s oil crash is unlike anything we’ve ever witnessed.
The price of the contract dropped $50 on Monday day to close at -$37.63.
So, not only did oil traders lose all their money, but they also had to pay more money to get out of the position.
You’ve heard of negative interest rates … welcome to negative oil prices!
The stay-at-home orders across the world might have been the lynchpin to the death of oil. But the crisis only accelerated an existing trend.
In the next decade, there will be a huge shift away from oil as modern technology causes massive disruption in the energy markets…
Driving a Gas Guzzler Is Really Cheap
Before I talk about why oil is on the way out, let me first illustrate what we use it for:
The chart above shows that 45% of oil is used for gasoline. And much of the rest becomes diesel fuel (25%) or heating oil (2%).
That means more than 70% of every barrel that gets pulled from the ground is used to power our cars and trucks and heat our houses.
Looking at the cascading price of oil, one might be tempted to think that gas guzzlers might stick around a little longer than expected.
Why buy an electric vehicle (EV) when gas is the cheapest it’s been in decades?
The answer isn’t so simple.
This decade’s expected rapid growth of EVs already meant that the daily demand for gasoline would plateau or even head lower.
Perhaps the drop in demand will even reach a point where it becomes cheaper to fill up your car with oil than it costs to charge an EV in the garage.
However, the bigger picture is that the cost of producing an EV will soon be cheaper than the cost of producing a combustion engine.
Automakers Are All-In on Electric Vehicles
When EVs first hit the market a decade ago, they were powered by expensive lithium-ion batteries. But that’s no longer the case.
Last year, in our August issue of Automatic Fortunes, which predicted the rise of Tesla, we highlighted the dramatic drop in the input costs for lithium-ion batteries:
Given the falling price of batteries, consulting giant Deloitte thinks EVs could cost the same as internal combustion engines as early as 2022.
That’s why major auto manufacturers are quickly shifting away from gas guzzlers.
General Motors is spending $20 billion through 2025 on its EV fleet.
Ford plans to develop 40 new full-electric and hybrid vehicles, spending $11 billion by 2022 to do so.
Toyota announced plans to generate half of its sales from EVs by 2025, five years earlier than it previously estimated.
And Volkswagen said it will spend more than $30 billion developing EVs by 2023. The manufacturer also aims for EVs to make up 40% of its global fleet by 2030.
Unlimited Power
Batteries are also changing the way we heat our homes.
Companies such as SolarEdge, Enphase and Generac are pairing batteries with solar energy installations to store the sun’s energy and make solar more efficient.
This will cut demand for home heating oil as individual houses harness more power from the sun.
Readers of my Automatic Fortunes service are already positioned to profit from the rising solar market with two red-hot stocks. Click here to learn more.
Regards,
Editor, Automatic Fortunes