Thread by @RapsonEnergy

Electrification is not going to save us from the energy crisis that we’ve entered. Several factors point to prolonged tightness in crude oil markets that can only be solved by increasing supply. A 🧵. 1/n

Oil price levels and volatility have increased dramatically in 2022, reaching heights over $140/bbl before settling back to levels in the low $100s. For comparison, 2015-2019 saw prices generally in the $40-60/bbl range. So (captain obvious!) they are much higher now. 2/

Why? First, demand. Relaxed covid restrictions and residual effects of gov't stimmies have unleashed pent up travel activity, along with a return to normal. Global oil consumption is back to pre-COVID levels, and we haven't yet entered the high demand (summer) season. 3/

Lockdowns in China have reduced global demand by more than 1%. When summer comes, weather improves, and (if) lockdowns end, global demand could increase by as much as 2M bpd. 4/ oilprice.com/Energy/Oil-Pri…

Then there's supply. Russian sanctions have removed as much as 3M bpd from the market -- 3% of global supply. 5/ energyintel.com/0000017f-92c6-…

Oil companies in the rest of the world, having endured years of low returns, are now printing cash and returning it to shareholders instead of investing in new supply. 6/
oilprice.com/Energy/Energy-…

The oil market is going to continue to tighten until one of two things happen: demand falls or supply rises. So how's that looking? Well, it's possible that a global recession or new covid variants will reduce demand. But we're all crossing our fingers that doesn't happen. 7/

What about #ElectricVehicles? It's a fantasy to expect them to take a dent out of oil demand quickly enough to matter for this cycle. There simply aren't enough of them. And often they aren't driven all that much anyway. @EconoFactOrg 7/ econofact.org/is-it-time-to-…

To stabilize oil prices, there must be investment in new supply. But important factors -- uncertainty and #ESG among them -- are inhibiting the flow of investment. 8/

This highlights a central tension of our era. On one hand, protecting the climate requires less oil consumption, and high prices are helpful to that end. On the other, oil remains the lifeblood of our economy. The well-being of humanity still depends on it being affordable. 9/

We need to create conditions in society that allow for the flow of capital back into O&G investments. That means softening the activist stance against oil producers. Sure, we need to transition. But during the transition, we still need more oil. It's that simple. 10/

Leaders have a role to play. @POTUS should frame O&G investment as pro-social. The #ESG community, which also cares about the well-being of the least well-off among us, needs to recognize that starving the oil sector hurts poor people. 11/

Universities and pension funds should stop their unhelpful divestment campaigns. This is not a time to virtue signal; it's a time to lead. @Harvard 12/ npr.org/2021/09/10/103…

Finally, the #EnergyTransition needs better policy support. Subsidizing green stuff (EVs, solar) isn't enough. We need to tax pollution. EV subsidies don't remove gasoline cars from the road. Solar doesn't eliminate the need for nat gas generation. 13/ cbsnews.com/sanfrancisco/n…

We need to do better. In the meantime, don't feel bad about investing in oil stocks. Companies need capital to increase supply, and we need more supply to stabilize energy markets and keep prices down for the average citizen. #OOTT #COM 14/

Besides, if one of your investment goals is to make money, well... 15/

https://twitter.com/RichardDias_CFA/status/1521903438543691776?s=20&t=d0zyiKOB5bl79WjhrJE2QQ

To summarize, several factors on both sides of the oil market are conspiring to create scarcity, and it will probably get worse before it gets better. The clearest and safest way out is to expand oil supply. That takes time, so we need to shift our perspective quickly. 16/16