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Big Oil Is Down, But Not Out

According to the IEA, oil prices are in for a nasty ride as the glut is only going to get worse next year. While there may have been some optimism on the oil price front with a couple of handfuls of trade war candy tossed around by both Washington and Beijing yesterday, that is being offset by speculation that Trump is going to let up on Iran, which could - sooner rather than later - mean more barrels in the market. The bigger fundamental picture, the IEA points out, is that the glut is growing, even if relentless stockpiling has taken a bit of a break right now.

Big Oil Down, But Not Out

Exxon has slipped out of the S&P 500’s Top 10 most valuable companies… BP is facing a shareholder resolution forcing it to justify spending in line with the Paris climate goals, and it’s already promised to sell off any assets that would keep it from complying with those goals.

And on a broader scale, energy companies, in general, are slowly accounting for less and less of the S&P 500’s total value.

The reason for this downtrend in energy stocks is multi-faceted. Investor activism is working hard to bring climate issues to the forefront. Oil and LNG prices are low and languishing, putting the squeeze on companies that aren’t lean and mean, and stifling investment in new high-cost projects. And then there is probably the largest headwind facing Big Oil: faltering demand growth.

But most of Big Oil is doing what it must to adapt to this increasingly tough environment, so don’t write any of them off just yet.

BP is telling shareholders what they want to hear. Exxon is abandoning North Sea stakes in favor of shale projects in the US and its major finds in Guyana. Almost all of the players categorized under the Big Oil heading are dipping their toes in cleaner energy - but some, particularly the European majors like Shell, are jumping in with both feet.

Petrochemicals - probably oil’s best future hope, is also courting Big Oil. Aramco (and it’s US subsidiary, Motiva) are barreling toward plastics and petrochems like there is no tomorrow.

Big Oil is simply transitioning, and where there is big transition, there is also big opportunity - for those savvy enough to get out in front of it.

Oil demand growth may be slipping, but oil demand isn’t - and it’s unlikely to slip in the next decade. Just as oil companies had to adapt during the price crash, so too will they need to adapt to today’s environment. Big oil is set to be a good bet - and the oil companies that are already responding to the changing market are set to win big, at the expense of those who aren’t.

EVs Struggle to Flourish in Top Markets

China’s auto market - the largest in the world - has seen a decline in EV sales for the second month in a row. China saw both a year over year decline and a month over month decline, with 85,000 pure EVs sold in August - a 16% decline for the month. It’s not a great set of statistics for the EV segment - or the battery metals market - considering that China represents half of the world’s total EV sales.

Until now, EVs have flourished in China largely because the government doled out generous subsidies. But those subsidies have been scaled back, and EV sales have fallen sharply as a result. China’s slowing economy due to the trade war hasn’t helped much, either.

These depressing statistics have not deterred Elon Musk, who just secured a 10% tax break for Tesla. This will make Teslas more than $10,000 cheaper, and will surely give Tesla a huge advantage for its sales there, which coincides nicely with its Gigafactory 3 plant which has gone up nearly overnight.

But not everyone is taking a page from China’s playbook. California - the world’s second-largest EV market behind only China - has put the kibosh on a bill that sought to triple the rebate that buyers could get for buying EVs, which would have meant a total of $7,500 in every EV buyer’s wallet, at a cost of $10 billion for the state. Californians are settling now for $2,500. The EV market worldwide is still in its infancy, and the link between EV incentives and sales is clear.

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