Trade of the Decade
Dec 07, 2011 |
There are very few sure things in markets and investing. So I don't say this lightly: the price of a barrel of crude oil will average over $125 this decade.
Even if I'm wrong, you will want to explore my logic. Because even if I'm too bullish by $25 per barrel, there will still be lots of money made by smart traders exploiting the swings of the global energy megatrend in the 21st century.
My petroleum bullishness is based on three driving "mega forces" affecting global energy supply and demand. And my focus on these secular trends helps me pick winning stocks and ETFs in a half-dozen energy industries. Let's talk about the mega forces first, and then I'll tell you how to join me trading them.
Mega force number one: Emerging markets
Between the BRIC countries (Brazil, Russia, India and China) and dozens of other developing economies in Africa, Asia, South America and the Middle East; one could estimate that there are at least two billion people who aspire to the lifestyles of the West. These emerging middle class populations want the same jobs, housing, food, clothes and transportation we have.
As their governments and entrepreneurs oblige, this rapid development means lots of new urban infrastructure, including the roads, bridges, schools, hospitals and energy grids of any modern city. All of this means an incredible growth rate for energy demand. Plus, nearly every new automobile purchase in an emerging economy adds incrementally to oil consumption.
But don't take my amateur economist view on emerging economic development and the energy demands that go along. Here are some forecasts from the International Energy Agency (IEA) in its November 2011 "World Energy Outlook" report:
The last point is especially worth noting if you are an investor in "alternative" energy like solar and wind power. While global energy demand rises by over 30% in the next few decades, fossil fuels only drop off 6% in the total consumption pie.
World primary demand for energy increases by one-third between 2010 and 2035.
In 2035, China consumes nearly 70% more energy than the United States, the second-largest consumer, even though by then per-capita energy consumption in China is still less than half the level in the United States.
The rates of growth in energy consumption in India, Indonesia, Brazil and the Middle East are even faster than in China.
The share of fossil fuels in global primary energy consumption falls slightly from 81% in 2010 to 75% in 2035. Natural gas is the only fossil fuel to increase its share in the global mix over the period to 2035.
Mega force number two: Peak oil
You have no doubt heard of the theory of "peak oil". In case you've forgotten its premise, this is the idea that we have reached, or are soon about to cross, the threshold where the majority of known global oil reserves in the ground are at their maximum and will only decline going forward.
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Kevin Cook is a Senior Stock Strategist for Zacks.com.
The information supplied above by Zacks Investment Research Inc. contains opinions based on factual research which may or may not be accurate. Neither Zacks nor Intellisphere will assume any liability for losses from investment decisions based on this information.