Back in 2011, I had the future all figured out. Renewable energy (including efficiency) would expand along with fracking until the oil market fell for good, resulting in a global recession as businesses adapted to the new abundance.
In 2014, when oil prices turned south due to the Saudi oversupply aimed at its opponents in the Syrian war and the American frackers, I anticipated a second run-up, followed by that oversupply recession, probably in 2017 or 2018.
For a time, it seemed I might be wrong, but oil prices are on the march again, because our economies remain dependent. Prices have bounced solidly off $30 and gone back to the $40s. The Syrian guns are not silent, but they are less active, and ISIS, the only party no one will talk to, is slowly being strangled. This will allow larger powers to hash something out, maybe including a partition, which in turn would cause them to turn back to their own economies, and the need for more oil revenue.
A WTI price in the $40s, if sustained, would be a good thing for Texas, for low-cost producers like Pioneer Resources (NYSE:PXD), and for banks like Wells Fargo (NYSE:WFC). The problem is these things always overshoot. Producers that got no pity at $30 are not going to cry bitter tears for consumers if they can get $50, $60 or more. All the market needs is someone to turn the spigot back, and that will happen much faster than anyone now anticipates. All we need for $60 oil is for a little peace to break out.
But higher prices, especially if it's a short-term spike, only underline the unreliability of fossil fuels. Renewable prices, on the other hand, don't fluctuate. Data centers and utilities buy solar power systems and wind power systems based not on $30 oil or $2 natural gas, but on assumptions about what will happen to prices of 10-20 years. The steady write-down of capital costs associated with renewables provides visibility on future prices, that is their economic argument, and a spike in fossil fuel prices reinforces it.
Fossil fuel bulls also continue to ignore the cheapest and most abundant renewable fuel of all, efficiency. LED bulbs, more efficient appliances, hybrid and electric cars, better industrial engines, improved designs using 3D printed parts, and simple insulation all pay for themselves. The recovery time is longer if natural gas is $2/mcf as opposed to $5, which suppliers would love, or $10-15, which is what Europeans and Asians pay, but it's still real.
This is the thumb on the scale of fuel prices that is not going to lift, not now, not ever. If anything, new technology will continue to make it heavier. At some point, maybe in 2018, the supply of efficiency, and renewable alternatives, is going to start biting down on Russia and Saudi Arabia, as opposed to their own ambitions. That economic event remains ahead of us.
All we've really seen this last year is a preview of coming attractions.
Disclosure: I am/we are long WFC.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.