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Musings From the Oil Patch – January 23, 2018

Investor returns from owning energy shares have lagged the performance of the overall stock market for a long time, even though energy was the top performing sector in 2016.  The extended period of poor performance reflected investors’ realization that energy company profitability was a risk well before the 2014 peak in oil prices and subsequent crash.  Producers outspending their cash flow was acceptable to investors prior to 2011, but since then not so much.  Could Andy Hall and Boone Pickens shutting their respective oil trading and energy hedge funds down in the past six months have signaled the bottom for oil prices and energy share prices?  The bitter cold temperatures in New England earlier this month showcased the dramatic impact weather can have on energy prices, especially in a region that is capacity constrained for cheap natural gas.  New England environmentalists blocking new and expanded natural gas pipelines to supply the region are condemning residents in the region to increased energy poverty.


The recent consumer and auto shows highlighted autonomous vehicle technology, while ignoring electric vehicles.  Is that because one technology is new and sexy, while the other is now mainstream?  Importantly, the future for EVs now is more in the control of regulators than consumers.  Predicting that future cannot be done without contemplating how shifts underway in the global transportation market will reshape it.  Germany’s green revolution is showing signs of structural problems as the increasing volume of renewable energy is driving residential power costs up sharply.  Moreover, utility company embrace of more renewable power is working to the detriment of German’s carbon emissions goal and potentially its leadership role within the EU.



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