One Word: ‘Plastics’
On Saturday, I told you about “Your Next Best Bet in Energy.” Since then, the price of oil has gone up … and up!
In fact, this week saw oil prices settle at their highest level in seven weeks, driven by expectations that the economic and oil demand rebound in the U.S. and Europe would more than outmatch fears about surging COVID-19 cases in India and Brazil.
Meanwhile, many investors worry that oil is history — that in the world’s historic shift to electric vehicles, our thirst for oil is going to dry up. Heck, The Goldman Sachs Group (NYSE: GS) predicts oil demand for transportation will peak as early as 2026. And that’s put fear in the heart of oil industry investors.
If you want a glimpse of the future, look at Asia, home to some of the world’s most booming economies and three of the top four oil-thirsty nations. Asian oil refiners are expanding, building massive new plants. And those plants are built with an expected lifetime of 50 years — at least!
Asian refiners are expecting gasoline demand to decline slowly, while marine diesel demand is expected to stay steady for decades. Jet fuel will probably be the go-to for air travel for even longer than that. More importantly, demand for petrochemicals — especially as plastics — is projected to rise rapidly.
In fact, global plastics consumption will rise more than 60% to close to 600 million tons by 2050 from 2019 levels, requiring refiners to produce an additional 7 million barrels a day in feedstock. That’s according to an analysis by energy consultancy FGE.
And the International Energy Agency (IEA) says that petrochemicals — plastics and polymers — will account for more than a third of global oil demand growth through 2030.
Now, let’s add a few more things to spice up this mix.
Asia’s Middle Class Is Booming
This will drive demand for consumer goods and plastics, as well as polymer packing and building materials. Heck, even the EV megatrend will feed the plastics boom as car manufacturers use more and more plastics in a bid to make vehicles lighter.
U.S. Stockpiles Are Falling
America’s crude inventories fell by 8 million barrels in the most recent week to April 30, dropping to 485.1 million barrels. Analysts were expecting only a 2.3-million-barrel drop.
U.S. Oil Exports Are Surging
The most recent week’s data also showed that oil exports jumped to 4.1 million barrels per day (BPD) from 2.5 million BPD the previous week. That’s the highest level of exports since March of last year. We’ll probably export more as Asian economies shift into higher gear.
Summer Driving Season Is Around the Corner
Oil stockpiles always go down as Americans hit the road. And THIS summer is coming after Americans were stuck at home for a year. Summer vacation travel could hit records — which means more fuel demand, which means tighter supplies. And that could boost prices.
Put it all together … and it’s likely we’ll see $76 to $80 per barrel this summer.
When I told you about the coming oil boom on Saturday, I recommended the SPDR S&P Oil & Gas Exploration & Production ETF (NYSE: XOP). And it’s blasting off. I still think oil services is the industry that will lead this move. I just gave my Supercycle Investor subscribers a new pick in oil services this week.
Another fund that should do very well is the Vanguard Energy Index Fund ETF Shares (NYSE: VDE). It’s taking wing, too!
The VDE has an expense ratio of just 0.10%. And it’s primed to blast off if oil prices move higher.
And, as I think I’ve shown you today, the oil industry has nothing to fear from the future. Plastics and other polymers will drive oil demand for decades to come.
Remember to do your own due diligence before you buy anything.
All the best,