Are we in an Oil and Gas price “Supercycle”, and what does that mean?
Is this a “Supercycle”? Well, I do know, but what we do know is that we are in the fourth commodities boom in human history. As I have talked about, the wealth generated by commodities is the only way to survive against inflation and higher taxes. This commodities boom will be longer and more widespread due to the total break down of the world’s supply chain and societies interdependence on energy. As we've see in recent months, countries will go to war over energy and food supplies. The next few years will be very interesting to see how the worlds leaders look to solve these issues.
Getting back to the supercycle, The Motley Fool posted an excellent article talking about what a supercycle looks like.
“A supercycle is defined as a sustained period of expansion, usually driven by robust growth in demand for products and services. Economic supercycles tend to produce strong, sustained demand for raw and manufactured materials, such as metals and plastic, that exceeds what commodity producers can supply. Supercycles, which are also good for stock prices, are often associated with long-term periods of growth for the commodity markets."
In that same article the author describes three economic supercycles:
· The industrialization of the United States in the late 19th century
· The reconstruction of Europe and Japan after World War II
· The emergence of China as a leading global manufacturer
All three components of these major events are in play in our world today, except magnified. Industrialization, war, and China taking over the world are all in play. We can look at industrialization as all the printed stimulus money being poured into the migration to renewable energy. War in Ukraine is only the beginning of the reshaping of European geopolitical borders. We have yet to see how this plays out and there are other geopolitical war potential getting fired up over food and energy.
There are some key issues to this cycle that we are looking at from a financial forecasting model. The world’s energy model is changing and the outcry to destroy oil and gas is and argument that is starting to have major kinks in it's armor. Last year the Biden administration and COP26 both quietly announced that natural gas and nuclear are “renewable” and are available for renewable funding. They were starting to realize that they cannot get to carbon net-zero without natural gas and nuclear. The Biden administration last week announced a several billion-dollar program to boost nuclear production. And this week we had our climate czar John Kerry put the natural gas market on notice.
On Bloomberg TV Kerry states: “If you can capture the emissions -- literally, genuinely -- then you’re reducing the problem,” said Kerry, the U.S. special presidential envoy for climate. “We have to put the industry on notice: You’ve got six years, eight years, no more than 10 years or so, within which you’ve got to come up with a means by which you’re going to capture, and if you’re not capturing, then we have to deploy alternative sources of energy.”
The Bottom Line
We are in the fourth commodities boom in history and facing tough times ahead. The world will not look the same in 2023 and 2024 as it does today. What will look the same is the importance of oil and gas to the world’s economy and use in elevating people out of poverty. Only the narrative from the climate folks is changing.
When John Kerry says you can have your natural gas for six to ten years you know it is a complete change in the talking points for climate culture. This change in the narrative started last year and is just starting to work its way through the ranks of climate leaders.
I think the terminology of a commodities boom, or supercycle is almost irrelevant. Both have tremendous impact to society and financial wealth. The beginning of the “First Stage of Climate and Energy Change” is a better description as the narrative is starting to change in a positive way for the oil and gas industry. It may not look like it this week but hang on.
We pointed it out last year it was coming, and it has started moving, but how fast energy policies change will still take time. Oil and gas is here to stay, and it will be at higher prices for decades before we can see any drop in prices. People are looking at alternative investing to protect their portfolios. That means getting out of the stock market and investing in commodities. My recommendation is to look for what is best for your portfolio and reducing your tax burden.
As always check with your CPA if alternative investments are good for your portfolio
Please reach out to our team at any time for answers to your questions.
Jay R. Young, CEO, King Operating
ForbesBooks Author of “The Upside of Investing in Oil and Gas"