Up until recently oil stocks have been about playing/gaming some type of normalization from the 2014-15 crash. Mostly, repeated attempts at knife catching. Over this past month or two it seems investors are finally looking a little beyond this and starting to price in the secular challenges facing global oil supply & demand.
- Electric car dominance is no longer a question of “if”.
- The fuel intensity of global growth continues to decline, as emerging economies catch up with the well-established trends in the advanced ones.
- Extraction technologies have become vastly more productive and less expensive.
From an investment standpoint, this is a headwind—whether the price of oil is rising or not. If the price of oil were to rise, no doubt oil stocks would also, just probably with a lower beta to it. It makes the sector a much less attractive risk-reward proposition, despite how beaten up it has been.
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