Sounds crazy, right?
But that was almost exactly the offer the world’s energy markets were making back in April of 2020 … back when the price for a barrel of oil settled at -$37.63.
Yes, that’s a negative sign in front of that figure.
And it means that, at a time when Americans were still paying an average of almost $2 per gallon of gas, commodities buyers were getting paid to take crude oil.
One of my neighbors even pulled me aside to ask: “How the hell does that even happen?”
As the pandemic sunk the entire global economy, the world was awash in too much oil. And storing oil is expensive, so producers were paying buyers just to take it off their hands!
Things are very different today.
Oil is pushing over $100 to hit levels we haven’t seen since 2014, reflecting today’s scenario of tight supplies and little extra capacity.
It just goes to show how unstable these commodities markets can be from one year to the next. A major crash could be around the next corner and most investors probably wouldn’t know it.
In fact, here’s why the world is possibly staring at a full-blown energy crisis…
Dangerous Dependence
The last two years have laid bare just how fragile our global supply chain is.
Consider the complications of our semiconductor sector, for example. Shortages of microchips are impacting the supply of everything from vehicles to refrigerators.
We’re starting to discover these chips, while making our lives easier, can also act as a major bottleneck if supplies are limited.
And vulnerabilities have emerged from relying too much on one firm or country.
Now nations are rushing to onshore chip manufacturing … like Intel’s announcement for a $20 billion foundry near my town in Ohio.
The exact same thing is happening in the energy sector.
Because while chips are important and convenient … energy is critical to a functioning economy. Russia’s invasion of Ukraine has revealed the real-world dangers of relying on unstable partners to meet your own country’s energy demands.
Ted and I showed you the impact of this conflict on various commodity sectors in our most recent edition of Your Money Matters.
That shock to the system has the entire world rethinking energy arrangements. And it’s unleashing the next big wave of opportunity.
Buy Energy … All of It
The growing crisis in Ukraine is spotlighting the world’s dangerous dependence on Russia for energy, especially if Russia decides to “weaponize” its supplies by removing them from the market.
Russia is the world’s second-largest producer of oil and supplies up to 40% of the natural gas used by Europe.
And just like how supply chains are being retooled, the race is underway to develop energy independence. Especially in countries that depend on external partners.
Like Germany, for instance. The nation is accelerating its plans to transition to 100% renewable energy. They moved up their timeline by a full five years … to 2035.
That leaves an awful lot of time for things to go wrong and another crisis to emerge over the next decade.
So, to plug the gap, nations are scrambling to ramp spending on energy sources like liquified natural gas (LNG) to bridge the gap to renewables and provide alternative energy options. Germany just announced plans to “quickly” build two new LNG terminals.
Put it all together, and a spending boom is set to be unleashed across both renewables and fossil fuels.
Perhaps that’s why the S&P 500’s three top gainers on Monday included two solar suppliers, and an oil exploration and production company.
You can grab exposure to the energy infrastructure buildout with the Alerian Energy Infrastructure ETF (NYSE: ENFR).
Best regards,
Clint Lee
Research Analyst, The Bauman Letter
