It was more than a week – almost two – that I hadn’t written to my premium subscribers.
I didn’t have the slightest idea what to say to them.
This is so unusual for me, having written two or three times a week on the energy markets since perhaps 2003, hundreds of columns and short videos over the last 20 years for various outlets, including my own.
So at least I wanted to share what I see as the present state of the energy world and what I believe is our future there as investors. I’ll also outline my problem making any recommendations right now. This might be a long letter, and rehash many of the themes I’ve touched on at least since the Summer of 2024 and well before — but we are long-term investors and capital hoarders, not day-traders – our perspectives are more long-term than some others looking to make a ‘quick score’.
Sometime in 2023, during the pandemic recovery, it became crystally clear to me that fossil fuels, and particularly crude oil, was changing it’s position in the global economy and the place it had held for the entirety of my 45 year career following oil.
It was about growth.
Oil was transitioning from the growth industry (for the last century!) into a more stable, ‘consumer staple’-like sector. I could spend an entire book describing the factors and indicators I saw for this change, but they all centered around growth. Global oil demand had grown for the last 50 years at a pretty steady rate of 10 million barrels a day every 10 years, and that steady demand growth gave oil a bullish bias traders and investors relied upon. Surely, there were moments in the interrim when supply overloaded the demand picture (or an economic crisis intervened) and oil got slammed — but that always led to contraction among marginal players and the resurgence of that inexorable demand that always led to the next oil price spike – and tremendous investment opportunity.
That growth has ‘sort-of’ resumed post-pandemic, although it took 4 years to get back to the demand we saw pre-pandemic. But in the interim, transition investment was everywhere and it seemed to me (and most other analysts) that peak demand for oil was less than 10 years away.
Previously, there were also other factors that added to the volatility and ultimately the profitability of trading and investing in oil and oil stocks, not least the geopolitical reactions and speculative forces that continued to ‘mess with’ the price of oil. Many of those factors have been rendered passive or have disappeared entirely – for example, an Israeli/Gaza/Lebanon war would have previously moved oil spectacularly overnight. This last war hasn’t moved prices hardly at all. Investment banks and other speculative traders of crude markets have all shut down, and the algorithmic firms now control every contract and every penny that crude oil prices see. Anybody looking to day trade oil – or even just add oil as a medium to long-term investment – is risking getting chopped up like so much fodder by the machines. No one does it successfully anymore (at least no one I know).
On the supply side, the investment into sustainable energy sources, particularly the push towards EVs and electricity infrastructure was starting to slowly limit the profitability of oil companies. While oil was hardly disappearing, and would be relied upon for decades, it’s best days of rapid growth were behind it. An oil market that has flattening demand and supply is a market that doesn’t move much, which is basically what we’ve seen from oil. Since the post-pandemic supply shortage spike in 2022, oil has been trading between $70 and $90 a barrel.
As traders say, “you gotta have beta to make alpha”. In other words, a market that won’t move much won’t yield much in investment returns either. It was time to move on.
I patiently waited until the hype was blasted out of the renewable markets by the Federal Reserve’s big inflation reduction rate hikes after the pandemic and it was in mid-2024 when I decided the time was as ripe as it could be to restructure my own portfolio and my Energy Word recommendations, reducing exposure to dedicated fossil fuel companies and particularly dedicated crude oil producers. I suggested moving into those renewable companies that had quality balance sheets, and had proven competitive with Asian producers. I also felt that infrastructure was a less touted and better value investment in sustainable energy, and suggested both renewable grid builders and utilities, as well as commodity producers for batteries and electricity transmission and delivery. We took a small wager as well on nuclear, which had come a long way since Chernobyl and Three Mile Island and would necessarily be another alternative energy source very difficult to ignore.
What I did ignore, during this restructuring, was Trump.
I considered, of course, that he could win the election – but did not consider to what degree he was willing to break down completely the role of our government in the operation of our systems. Even more, to wage war on those systems we have relied upon to keep markets steady. By that, I mean our economic systems, sure – but also our regulatory systems and legislative structure as well. Of course I’m talking about random across-the-board tariffs for Canada and Mexico, those are easy to see, but there’s also been the destruction of systems at the EPA, with the concurrent attempts to remove incentive programs for renewable projects by executive order and targeting any government incentives for new energy infrastructure investment. This has all but halted investment in renewables for the time being, after being in full flight forward, with major tech companies, for example, rethinking their commitment to huge, independently built and operated energy centers to power AI growth. Trump’s disdain for the Chips and Science Act, as another example, has put more than $400 billion in private technology investment at risk, and it’s been clear that sustainable energy producers and infrastructure providers have taken this President as seriously about their industry – as has Wall Street.
Consequently, and besides the general market chaos that the Trump tariff wars have provided, both tech and renewable energy has gotten hammered recently in this ‘correction’ as some are calling it. Forget about Tesla – Microsoft and Google are down 20% themselves in the last few weeks. And our own “blue chip” plays like Constellation (CEG), First Solar (FSLR) and Centrus (LEU)? They’re all down closer to 30%.
So, what would I have to say after all of that? Remember, we’re only in the first 60 days (!?!) of Trump 2.0. Who knows if he’s only picking up steam from here. I am absolutely convinced, as just about every other energy analyst, that the transition of energy from fossil fuels, and particularly crude oil to sustainable energy and instantaneous electricity is inevitable — but the chaos factor from Trump is proving an impossible factor in managing our investments. Is he willing to push on tariffs and cause a recession? Will he ask Congress to restructure legislation passed in previous administrations? Will he unilaterally withhold further funds for incentive programs that have already been allocated? Will he fire Powell and force the next Fed chair to drop interest rates to zero? How about leasing government land and GOM areas, or even delivering a huge tax write-off to oil companies to incentivize more oil production that can be profitably done at a loss compared to market prices? I have no clue, and I don’t think anyone else does either, probably not even the President himself.
Can Trump put the oil markets in a time machine and return them to 2003? (or 1983?) Almost certainly not. But can he spectacularly slow or temporarily stop the inevitable energy transition that was already rapidly developing for the extent of his term and even beyond? That is the question now. And yes, there is that much power in this presidency, especially when it’s become clear that the current Congress is willing to rubber stamp whatever Trump asks.
I can’t bother with climate change implications or other economic side-effects from pursuing these ‘policies’ in this letter, but they are potentially massive. I’m going to stick to just talking markets, because that’s why most people read and subscribe to my letters.
From just a trader’s viewpoint then, and looking at First Solar trading $130, for example, my instinct is to buy it hand over fist. Even if the government reneges on it’s incentives, the momentum towards solar is so great now it still should be worth double that in three years, $500 a share if it doesn’t. Constellation? I only reluctantly sold $350 calls on the stock as a hedge less than a month ago, fully expecting to be forced to cover them as the stock streaked well past there in 2025. Instead, the stock is trading at $200. Do I want to buy more? Man, do I. But then I look again at what’s going on in Washington and know I simply don’t want to fight that steamroller, at least right now.
I know a lot of traders who are trying to, though. CEO’s are taking their shot right now and buying back mountains of their own shares. I understand that instinct, a lot of stocks look mighty cheap. If you are the type who is willing to ride the rocket and assumes that the government of the United States will somehow ‘right itself’ in the near future, the opportunities are immense. I am a big believer still in the robustness of the United States economy, and could easily believe the ‘correction’ analysis that some have put forward. Quite simply, the US economy was the ‘envy of the world’ as the Wall Street Journal correctly said when Biden was in office, and it would take no more than Trump ceasing his silly tariff war and relaxing Elon Musk and DOGE just a little to make those dip buyers massively happy.
And, to be fair, it’s not like the markets didn’t need a bit of a reset anyway. Trump or no Trump, P/E ratios were pushing 30 again as Biden left office, and certainly did not make a case for aggressive stock investment six weeks ago. And, even if somehow Trump continues this suicidal effort to cause a recession (and destroy his own approval ratings) and you get those P/E ratios back down towards 20 like they were during the first months of the pandemic, or even closer to 22 or 23, I have incredible faith that the US economy is worth buying that cheaply, no matter who is in the White House working to wreck it.
But today? The S&P has given back the last 6 months of gains. Big deal. Convince me that Trump is done with his shenanigans and I’m a buyer, but I think he’s only going to get worse. So, I’ve got my hands in my pockets again, with very little to say to my subscribers.
By the speed that events are moving along these days, that shouldn’t last long.
That’s all for today.
dan@dandicker.com
