by Bryan Perry

September 28, 2021

As the world’s technologies and investment capital pour into renewable sources – including solar, wind, biomass, hydropower, and tidal energy – Wall Street and most of the institutional and retail investment communities have lost that loving feeling for fossil fuel stocks. In fact, many investment funds have restricted purchase of oil and gas stocks as ESG guidelines are added to their funds’ investment by-laws.

While the virtues of renewable energy are well and good, the reality is that fossil fuels supplied 84% of the world’s energy at the end of 2019. On a global basis, renewables made up only 5% of energy usage.

Global Energy Consumption Pie Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

By comparison to the global picture, the U.S. is making great strides towards replacing fossil fuel with renewables, where utility-scale electricity generation is seeing the greatest advancements. As of 2020, fossil fuels accounted for 60.3%, nuclear 19.7%, and renewables 19.8%. The U.S. is clearly making faster progress than most of the rest of the world, but despite all the hype and headlines surrounding renewables, 19.8% is a long way from the grid being anywhere near independent from fossil fuels.

There are basically five energy consuming sectors, in this order of consumption:

  • The industrial sector [32% of all energy consumption, including electricity] includes facilities and equipment used for manufacturing, agriculture, mining, and construction.
  • The transportation sector [29%] includes vehicles that transport people or goods, such as cars, trucks, buses, motorcycles, trains, aircraft, boats, barges, and ships.
  • The residential sector [20%] consists of homes and apartments.
  • The commercial sector [18%] includes offices, malls, stores, schools, hospitals, hotels, warehouses, restaurants, and places of worship and public assembly.
  • The electric power sector consumes the rest [1%], in the form of primary energy to generate most of the electricity consumed by the other four sectors.
    Source: www.eia.gov

While many thought that fossil fuel consumption would decline in proportion to more renewable sources coming online, it might come as a surprise that the U.S. Energy Information Agency (EIA is forecasting higher consumption of natural gas both this year and next.

United States Natural Gas Consumption Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Industrial gas consumption is estimated to exceed 23.8 billion cubic feet per day in the second half of 2021, representing record consumption rates, with the forward trajectory in demand looking very bullish for natural gas prices, which are already at multi-year highs, closing last Friday at $5.14 MMBtu.

United States Natural Gas Consumption Details Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Oil prices are also being supported by recovering demand around the world, while inventories are being drawn down. U.S. crude inventories last week fell by 3.5 million barrels to 414 million barrels, lowest since October 2018. Difficulties by OPEC members struggling to raise output with shortages causing a supply crunch in Europe and Asia added price pressures. WTI crude is about to take out previous highs.

West Texas Intermediate Crude Oil Price Index Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

It certainly seems that the politics of pursuing renewable energy at the expense of diminishing fossil fuel inventories is bad policy. Weaning the U.S. and the rest of the world off oil & gas is a noble endeavor, but it should be done in a manner that doesn’t compromise affordable supply. The Biden administration and the progressive wing of the Democratic party are stifling oil & gas production, which is fueling inflation.

Until renewable energy can be a bigger percentage of the grid and fuel needs of the transportation sector, there should be a much more responsible approach to meeting the energy needs of the U.S. and the rest of the world. Pushing oil and gas prices intentionally higher so they are comparable to the cost of renewables isn’t fooling anyone. It’s negatively impacting the middle and lower middle classes the most.

Based on current demand trends of a recovering global economy heading into holiday travel and winter heating seasons, these elevated oil and gas prices look anything but transitory. It’s a stark reality, not yet fully appreciated by the market, that most fossil fuel energy stocks are trading well off their 2021 highs.

For what it’s worth, the Energy Select Sector SPDR (XLE) pays a dividend yield of 4.25% and its top holding, ExxonMobil Corp. (XOM), sports a yield of 6.04%. Exxon also just happens to be the second largest natural gas producer in the world. For investors seeking inflation-sensitive assets with blue-chip dividend yields trading at pretty sizeable discounts with the underlying commodities showing further upside pricing momentum, consider the oil and gas sector. Over the long-term, renewables will win out, I don’t think anyone refutes this, but sometimes an unloved sector that is responsible for supplying over 80% of the world’s energy needs makes for a powerful intermediate-term investment proposition.

Navellier & Associates owns Exxon Mobil Corp. (XOM) in managed accounts.   Bryan Perry does not personally own Exxon Mobil Corp. (XOM).

All content above represents the opinion of Bryan Perry of Navellier & Associates, Inc.

Please see important disclosures below.

POLL QUESTION:

Marketmail Survey #6 is now closed.

About The Author

Bryan Perry

Bryan Perry
SENIOR DIRECTOR

Bryan Perry is a Senior Director with Navellier Private Client Group, advising and facilitating high net worth investors in the pursuit of their financial goals.

Bryan’s financial services career spanning the past three decades includes over 20 years of wealth management experience with Wall Street firms that include Bear Stearns, Lehman Brothers and Paine Webber, working with both retail and institutional clients. Bryan earned a B.A. in Political Science from Virginia Polytechnic Institute & State University and currently holds a Series 65 license. All content of “Income Mail” represents the opinion of Bryan Perry

Important Disclosures:

Although information in these reports has been obtained from and is based upon sources that Navellier believes to be reliable, Navellier does not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute Navellier’s judgment as of the date the report was created and are subject to change without notice. These reports are for informational purposes only and are not a solicitation for the purchase or sale of a security. Any decision to purchase securities mentioned in these reports must take into account existing public information on such securities or any registered prospectus.To the extent permitted by law, neither Navellier & Associates, Inc., nor any of its affiliates, agents, or service providers assumes any liability or responsibility nor owes any duty of care for any consequences of any person acting or refraining to act in reliance on the information contained in this communication or for any decision based on it.

Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any securities recommendations made by Navellier. in the future will be profitable or equal the performance of securities made in this report. Dividend payments are not guaranteed. The amount of a dividend payment, if any, can vary over time and issuers may reduce dividends paid on securities in the event of a recession or adverse event affecting a specific industry or issuer.

None of the stock information, data, and company information presented herein constitutes a recommendation by Navellier or a solicitation to buy or sell any securities. Any specific securities identified and described do not represent all of the securities purchased, sold, or recommended for advisory clients. The holdings identified do not represent all of the securities purchased, sold, or recommended for advisory clients and the reader should not assume that investments in the securities identified and discussed were or will be profitable.

Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. Individual stocks presented may not be suitable for every investor. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. Investment in fixed income securities has the potential for the investment return and principal value of an investment to fluctuate so that an investor’s holdings, when redeemed, may be worth less than their original cost.

One cannot invest directly in an index. Index is unmanaged and index performance does not reflect deduction of fees, expenses, or taxes. Presentation of Index data does not reflect a belief by Navellier that any stock index constitutes an investment alternative to any Navellier equity strategy or is necessarily comparable to such strategies. Among the most important differences between the Indices and Navellier strategies are that the Navellier equity strategies may (1) incur material management fees, (2) concentrate its investments in relatively few stocks, industries, or sectors, (3) have significantly greater trading activity and related costs, and (4) be significantly more or less volatile than the Indices.

ETF Risk: We may invest in exchange traded funds (“ETFs”) and some of our investment strategies are generally fully invested in ETFs. Like traditional mutual funds, ETFs charge asset-based fees, but they generally do not charge initial sales charges or redemption fees and investors typically pay only customary brokerage fees to buy and sell ETF shares. The fees and costs charged by ETFs held in client accounts will not be deducted from the compensation the client pays Navellier. ETF prices can fluctuate up or down, and a client account could lose money investing in an ETF if the prices of the securities owned by the ETF go down. ETFs are subject to additional risks:

  • ETF shares may trade above or below their net asset value;
  • An active trading market for an ETF’s shares may not develop or be maintained;
  • The value of an ETF may be more volatile than the underlying portfolio of securities the ETF is designed to track;
  • The cost of owning shares of the ETF may exceed those a client would incur by directly investing in the underlying securities; and
  • Trading of an ETF’s shares may be halted if the listing exchange’s officials deem it appropriate, the shares are delisted from the exchange, or the activation of market-wide “circuit breakers” (which are tied to large decreases in stock prices) halts stock trading generally.

Grader Disclosures: Investment in equity strategies involves substantial risk and has the potential for partial or complete loss of funds invested. The sample portfolio and any accompanying charts are for informational purposes only and are not to be construed as a solicitation to buy or sell any financial instrument and should not be relied upon as the sole factor in an investment making decision. As a matter of normal and important disclosures to you, as a potential investor, please consider the following: The performance presented is not based on any actual securities trading, portfolio, or accounts, and the reported performance of the A, B, C, D, and F portfolios (collectively the “model portfolios”) should be considered mere “paper” or pro forma performance results based on Navellier’s research.

Investors evaluating any of Navellier & Associates, Inc.’s, (or its affiliates’) Investment Products must not use any information presented here, including the performance figures of the model portfolios, in their evaluation of any Navellier Investment Products. Navellier Investment Products include the firm’s mutual funds and managed accounts. The model portfolios, charts, and other information presented do not represent actual funded trades and are not actual funded portfolios. There are material differences between Navellier Investment Products’ portfolios and the model portfolios, research, and performance figures presented here. The model portfolios and the research results (1) may contain stocks or ETFs that are illiquid and difficult to trade; (2) may contain stock or ETF holdings materially different from actual funded Navellier Investment Product portfolios; (3) include the reinvestment of all dividends and other earnings, estimated trading costs, commissions, or management fees; and, (4) may not reflect prices obtained in an actual funded Navellier Investment Product portfolio. For these and other reasons, the reported performances of model portfolios do not reflect the performance results of Navellier’s actually funded and traded Investment Products. In most cases, Navellier’s Investment Products have materially lower performance results than the performances of the model portfolios presented.

This report contains statements that are, or may be considered to be, forward-looking statements. All statements that are not historical facts, including statements about our beliefs or expectations, are “forward-looking statements” within the meaning of The U.S. Private Securities Litigation Reform Act of 1995. These statements may be identified by such forward-looking terminology as “expect,” “estimate,” “plan,” “intend,” “believe,” “anticipate,” “may,” “will,” “should,” “could,” “continue,” “project,” or similar statements or variations of such terms. Our forward-looking statements are based on a series of expectations, assumptions, and projections, are not guarantees of future results or performance, and involve substantial risks and uncertainty as described in Form ADV Part 2A of our filing with the Securities and Exchange Commission (SEC), which is available at www.adviserinfo.sec.gov or by requesting a copy by emailing info@navellier.com. All of our forward-looking statements are as of the date of this report only. We can give no assurance that such expectations or forward-looking statements will prove to be correct. Actual results may differ materially. You are urged to carefully consider all such factors.

FEDERAL TAX ADVICE DISCLAIMER: As required by U.S. Treasury Regulations, you are informed that, to the extent this presentation includes any federal tax advice, the presentation is not written by Navellier to be used, and cannot be used, for the purpose of avoiding federal tax penalties. Navellier does not advise on any income tax requirements or issues. Use of any information presented by Navellier is for general information only and does not represent tax advice either express or implied. You are encouraged to seek professional tax advice for income tax questions and assistance.

IMPORTANT NEWSLETTER DISCLOSURE:The hypothetical performance results for investment newsletters that are authored or edited by Louis Navellier, including Louis Navellier’s Growth Investor, Louis Navellier’s Breakthrough Stocks, Louis Navellier’s Accelerated Profits, and Louis Navellier’s Platinum Club, are not based on any actual securities trading, portfolio, or accounts, and the newsletters’ reported hypothetical performances should be considered mere “paper” or proforma hypothetical performance results and are not actual performance of real world trades.  Navellier & Associates, Inc. does not have any relation to or affiliation with the owner of these newsletters. There are material differences between Navellier Investment Products’ portfolios and the InvestorPlace Media, LLC newsletter portfolios authored by Louis Navellier. The InvestorPlace Media, LLC newsletters contain hypothetical performance that do not include transaction costs, advisory fees, or other fees a client might incur if actual investments and trades were being made by an investor. As a result, newsletter performance should not be used to evaluate Navellier Investment services which are separate and different from the newsletters. The owner of the newsletters is InvestorPlace Media, LLC and any questions concerning the newsletters, including any newsletter advertising or hypothetical Newsletter performance claims, (which are calculated solely by Investor Place Media and not Navellier) should be referred to InvestorPlace Media, LLC at (800) 718-8289.

Please note that Navellier & Associates and the Navellier Private Client Group are managed completely independent of the newsletters owned and published by InvestorPlace Media, LLC and written and edited by Louis Navellier, and investment performance of the newsletters should in no way be considered indicative of potential future investment performance for any Navellier & Associates separately managed account portfolio. Potential investors should consult with their financial advisor before investing in any Navellier Investment Product.

Navellier claims compliance with Global Investment Performance Standards (GIPS). To receive a complete list and descriptions of Navellier’s composites and/or a presentation that adheres to the GIPS standards, please contact Navellier or click here. It should not be assumed that any securities recommendations made by Navellier & Associates, Inc. in the future will be profitable or equal the performance of securities made in this report.

FactSet Disclosure: Navellier does not independently calculate the statistical information included in the attached report. The calculation and the information are provided by FactSet, a company not related to Navellier. Although information contained in the report has been obtained from FactSet and is based on sources Navellier believes to be reliable, Navellier does not guarantee its accuracy, and it may be incomplete or condensed. The report and the related FactSet sourced information are provided on an “as is” basis. The user assumes the entire risk of any use made of this information. Investors should consider the report as only a single factor in making their investment decision. The report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. FactSet sourced information is the exclusive property of FactSet. Without prior written permission of FactSet, this information may not be reproduced, disseminated or used to create any financial products. All indices are unmanaged and performance of the indices include reinvestment of dividends and interest income, unless otherwise noted, are not illustrative of any particular investment and an investment cannot be made in any index. Past performance is no guarantee of future results.