RE:Getting Back to First PrinciplesThese are excellent points, and deserve some careful consideration.
My belief is that in the mad rush to shift to ESG and transition side with investment, too many people jumped from one side of the boat to the other too fast, leaving the traditional energy side without enough capital to maintain necessary levels. Investors will come back to level it out, only before nearly sinking the ship.
My first wipeout in the stock market came in the dot com era, where I followed the crowd and bank investment recommendations, as the world rushed into internet and tech stocks. Was the internet a success as envisioned? Of course it was. It was just the thousands overhyped stocks based on insane PE and earnings ratios that were out of line, and brought back to reality. Too many, too much hype, and too high.
History shows what happened in the dot com era, Cannabis stock era, Crypto, and now it is happening in this alternative and renewable energy era. It has many sub groups like ESG, EV producers, carbon capture ventures, battery, rare earth companies, etc. Some will succeed, while the rest will fail. If you invest here, it is vital that you make the correct choice and pick one of the few winners in the sea of possible companies. I am not that smart. For my risk reward calculaiton, I am staying on my side of the ship, and staying with oil.
Now with energy, we have just witnessed in Europe, that when it comes down to it, energy security trumps ESG and climate change. Coal power plants have been brought back online, despite climate pledges. Countries have paid 30x the going rate for natural gas in order to keep the lights on, like $1000/bbl equivalents. Industry has been shuttered in order to save enough gas for populations to make it through the winter. Although a slaughter was going on in Ukraine, Europe kept buying from Russia even with the knowledge that they are funding the very enemy that may be in their towns marching through their towns next. How crazy is that? Now with Russian supply gone, and a stable balanced war front buffer zone of Ukraine established, they have weaned themselves off Russian fossil fuels, and eventually the future looks increasingly bright for LNG going forward.
Another geopolitical event could creat sever shortages and toss the entire progress the world has made on climate change right out the window, in order for countries to have energy. This is not priced into the current market.
There is a transition going on, but that does not mean the end of oil for a transportation fuel. We are adding EVs and solar arrays at great rates, but those additions do not cancel the overall increase in total transportaion and energy demand on a global basis. Poplulation growth in the emerging economies will sustain oil demand in the future. Oil will be needed for many decades to come, both as a fuel, and as feedstock for all the things we make from oil. We cannot live anywher near the way we do now without oil, and there are no real alternatives.
This is where I see that too many investors left oil and went to the other side, pulling money out to the point that it is unsustainable to maintain current production, and it will rebound with a vengence as global demand overshoots an increasingly constrained supply.
SU may not be the best vehicle, but it is just one of many companies that one can hold within a diversified handful of large cap Canadian heavy producers. I like it for the vertical integration delivering products right from the oil sand mine all the way to the fuel tank. It is reasonably stable with low volatility, well financed, secure, boring, and consistent. It is also like the run down house on the street, with great potential with some improvements like a new coat of paint, some repairs, and new CEO. Buffet saw this in SU, but moved on to OXY. Now Elliot is involved seeing the same potential.
Tomorrow we will see what the market thinks of SU earnings announced later today, but before that, we will see the direction the market will take after the in-line CPI data this morning. there will be some opportunities either way.