Energy Prices and Trends
Energy prices remain under pressure as an economic slowdown continues on a global basis without any end in sight. Additionally, while there are calls for the Organization of the Petroleum Exporting Countries (OPEC) to increase production, the United States has more than made up for shortfalls as it becomes a net exporter of oil. This has led to pressure on energy prices which impact energy companies.
As alternative energy becomes less alternative (solar power and electric autos are continuing to become more of a mainstream reality), demand for traditional energy will be impacted on the long-term. This will not happen overnight and the transition to non-fossil fuel energy sources will be a process. But it seems clear at this point that the curve has begun to arc towards non-fossil fuel sources of energy. The evolution is clear and irreversible.
There are several outcomes based on this expected long-term trend. They include:
- Energy companies will remain under pressure (particularly companies that are not diversified away from fossil fuel sources).
- New industries will emerge that will move to take advantage of the transition to alternative energy sources including battery makers and solar providers.
- Lower energy costs will likely continue to provide a tailwind for economic growth as lower prices reduce costs for consumers and businesses.
- The balance of global power will continue to shift away from countries that rely on oil exports.
There is a transition occurring that we believe will continue. You may understandably ask what our perspective is on energy companies and the energy sector as it relates to portfolio strategy. The short answer is we are cautious and continue to assess all exposures in portfolio strategies.
We are not overly concentrated in the energy sector and are engaged in the thoughtful and cautious examination of trends and how they might impact portfolio strategy. We are taking a new look at everything energy related in strategies and making judgments if any changes should be made. Be assured we do not have our heads in the sand regarding trends that might impact portfolio strategies.
The world is quickly evolving. The next transition towards new energy sources has begun. The question is how fast that transition will be and what the impact will be on existing energy companies. We will continue our assessment and make adjustments as needed. The entire research team at DWM is thoughtfully exploring possible adjustments to strategies If we believe adjustments are merited, we will make the change.
If you have any questions about this information, do not hesitate to let us know. Always here to help.