• Climate protection efforts are increasing
• Focus on renewable energy
• Nevertheless: several factors should support the oil price
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For a long time our economy and its growth was based on fossil fuels. In the last few decades, however, climate protection efforts have increased and so the trend towards renewable energies has also moved in the energy supply. Some companies are benefiting from the new focus on energy from eg water, wind and solar energy. But while some may already see the end of the oil market coming, it could be that fossil raw materials such as oil will remain with us longer than expected and prices may even rise.
As the Handelszeitung reports, three factors in particular could support the oil price and thus also give investors opportunities for returns in this area: the fact that the economy has not yet functioned without oil, a declining supply from the US market and a loss of power by the USA.
Renewable energies cannot cover energy demand
The renewable energy business has grown in recent years. As reported by Eurostat, the share of renewable energy in the EU more than doubled between 2004 and 2021. In 2021, renewable energy accounted for 21.8 percent of energy consumption in the EU.
But as the share of renewable energy increases, so does the total energy demand. According to a report by the Intergovernmental Panel on Climate Change, the demand for oil is expected to decline in the coming decades, but the amount of energy generated from renewable sources will probably not be able to cover the total demand in the future for the time being. Renewable energies should therefore initially only be used in addition to fossil fuels.
shortage of oil supply
According to the Handelszeitung, US oil production could also decline in the future. Because after the supply had grown steadily in recent years thanks to fracking, production fell significantly in the first few years – that was the unfavorable economic peculiarity of fracking. After three years, on average, only about 75 to 90 percent of the initial production volume could be mined. And in oil fields, too, production is falling year by year and has to be compensated for by new wells.
However, it is difficult to expand production. It already requires large capital expenditures just to keep production levels up – and this is happening even as interest rates rise, companies face possible environmental regulations and supply chain problems, labor shortages and inflation make companies less willing to invest. Against this backdrop, if US production falls, there is likely to be a tightening of oil supply, which in turn should push oil prices higher.
Oil states are increasingly aligning themselves with Asia
Another factor that could support the oil price is a loss of power in the US, which does not have good relations with some important oil states, the Handelszeitung reports. The relationship between the United States and Saudi Arabia is shattered, while China, as a more reliable ally and largest trading partner, buys 25 percent of all oil exports from Saudi Arabia.
This ensures that Crown Prince Mohammed bin Salman is openly aligning his country with Asia and China, and Saudi Arabia has announced, for example, that it will no longer only offer its oil in US dollars, but also in other currencies such as the yuan. In addition, the USA does not have a good relationship with other important oil states such as Russia, Iran or Venezuela, which could also strengthen their orientation towards Asia. For the US and its allies, this could mean that oil and natural gas will become more expensive in the future.
These developments could support companies that benefit from high energy prices and thus also offer return opportunities in the oil market for investors.
Editorial office finanzen.net
This text is for informational purposes only and does not constitute an investment recommendation. finanzen.net GmbH excludes any claims for recourse.
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