When Saudi Arabia pushed their oil production to the limit, COVID-19 remained a mostly local problem. The sudden, drastic drop in demand as a result of the global pandemic in turn caused a cratering of oil prices. With no end in sight for the pandemic or the ongoing price war, oil has become so plentiful that storage space is running out. Paradoxically, cheap oil may be the catalyst that pushes the world closer to renewable energy. As oil majors struggle to turn a profit, more money may shift towards the green energy industry.
James Jampel of HITE Hedge Asset Management believes that will be the case. In fact, his strategy of betting against the carbon industry has already paid off. His Anti-Carbon Fund has seen a 32% increase this year – when many hedge funds are suffering from double-digit losses. His theory is sound – despite heavy lobbying efforts, the world continues to move away from fossil fuels. By investing in major competitors, Jampel hopes to take advantage of the rapidly approaching tipping point.
Price War Threatens Oil Industry
Oil producing countries remain in dire straits as the price war between Russia and Saudi Arabia shows few sign of stopping. Sparked by a disagreement in production cuts, neither country holds the key to a solution. The United States shale industry remains a thorn in the side of both OPEC and Russia – both of whom depend almost entirely on oil revenue.
In contrast, the U.S. is far less dependent on oil sales. Over the past decade, America has emerged as a net oil exporter – sending shockwaves through the global oil hierarchy. The current price war harms both Saudi Arabia and Russia, but they hope it will force the United States out of the game. Unfortunately for them, the only response has been a tariff threat.
Steady Progress in Renewable Energy
While oil struggles, renewable energy continues the steady march towards market dominance. In 2019 alone, over 75% of new energy related projects were in the renewable sector. Even oil majors are investing heavily in new green technology, likely seeing the writing on the wall. Royal Dutch Shell alone invested billions in wind and solar energy projects.
Germany, meanwhile, produced over half of their domestic energy from renewable sources in the first quarter of 2020. The United Kingdom rapidly progressed away from coal use in 2019, dropping to levels last seen before the Industrial Revolution. Finally, while the coronavirus continues to wreak havoc across the globe – it also proves the necessity of local green energy supplies. The added volatility of the price war serves only to make the current situation much worse for the fossil fuel and carbon-focused industries.
Article By: Adam Stone