— When I see comments like this, especially from the likes of Jim Cramer (Squawk on the Street, 2/7/20), it gives me pause.

— Cramer’s ‘big call’ history is more than a bit spotty.

— Flawed as the much-heralded concept of ‘peak oil’ was back in 2008, writing the obituary for the fossil fuels industry may be a bit premature. 

When the going gets tough, Cramer cuts and runs

Things were tough in the market October 7, 2008, so tough that Mr. Cramer went on the Today Show and poured gasoline on the fire by telling the assembled masses that if they needed “the money (currently in the market) any time in the next five years” that they “should sell now!” I wonder how many who took his advice and sold ever put the money back in.

I see his call on energy to be in exactly in the same vein. The fossil fuel stocks have continued to shed value in a super (equity) bull market (not doing what he expected he had expect them to do– catch a bid). They can’t seem to get out of their own way and now we face more bad news (uncertain coronavirus impact on Chinese demand). With WTI poised to break support at 50$/barrel why bother? I believe Cramer’s call on energy is being made out of frustration and emotion … not a wise way to invest.

Things to consider before cutting and running

—  “Commodities still ‘knee-deep” in ‘supercyle bear market’ yet to run its course, analyst warns” (CRB index peak 2008 at 470.17 vs, Friday Feb 7 close 170.48 — down 4.45% on the year and 64% from the peak). My definition of secular bull market endings and beginnings goes as follow: A secular market ends at a record high on an index after which the market trades much lower over a period of years (a secular bear market). A secular bull begins on a strong breakout above the previous bull’s record high. .

— The two secular stock bears that I’ve seen in my career, 1966-1982 (44% peak to trough) and 2000 -2013 (57% peak to trough) took many years to unwind. The bottom on the 1966 bear came in 1974 (around 560 on the DJII). 2000 bottomed in 2009 (666 on the S&P 500). The emergence from these lows to new all-time highs (which would mark the beginning of a new secular bull) took years (1982 and 2013 respectively). The critique above, warning that the ‘super cycle commodity bear’ may have years to run, is misleading because those years could be on the upside on the way to a breakout. The current low on the CRB could be close to marking the nadir of a secular commodity bear market.

— Re. Fossil Fuels: “Both supply and consumption grow in 2020 in this forecast. EIA expects global oil supply will rise by 1.6 million barrels per day (b/d) in 2020 and global oil consumption will rise by 1.3 million b/d, contributing to global oil inventories rising at a pace of 0.3 million b/d.Jan 14, 2020″

— There is a common misconception that demand is not growing or in decline. This is not the case. The problem is that we continue producing more than we need.

— The problem is US … The United States and its bourgeoning shale oil production. This problem is solved by lower oil prices and higher finding costs putting a crimp in energy investment. On top of this decline rates in the permian basin continue to increase. Going up the down escalator gets tougher and tougher. “The shale boom is slowing just when the world needs oil the most.”

— History would indicate that the oil and gas industry is very cyclical. Higher prices create over investment and excess supplies that drive prices and investment down. Production falls because oil and gas wells have natural production decline curves. You have to keep finding more or shortages develop. Since the producers become so badly burned in the down cycle, they are reluctant to invest immediately. Prices begin to rise. Money begins to comeback cautiously, shortages grow and prices continue to trend higher because once investments are committed there is lag to the point of new production. Prices rise even more. Finally, very much like the stock market, everybody will want a piece of the action. This cyclical behavior phenomenon exists in all commodities.

The Elephant in The Room — Renewables

Yes, I know that in the final analysis renewables will play a significant and valued role in the future generation of electricity, but as you can see below, natural gas generation, as we move away from coal, is a going to continue to be a player.

Approximately 330,000 MW of new generation capacity is under development in the United States — 85,718 MW under construction or permitted, and 244,120 MW proposed or pending application. Almost half of the capacity currently under construction or permitted to begin construction will be fueled by natural gas. American Public Power Assn (2019).

I’m having trouble understanding how the 48% of the current homes in the US using natural gas for heating are going to make the switch to solar or electric heating any time in the next couple of decades. Also, how you heat your home depends very much on where you live, not the availability of alternate energy sources.

Then there is the continuing development of the undeveloped world (like the 1 billion Chinese that are not part of the middle class) and the demand that will generate. It will not be all renewable!

“Expansion in the gas and LNG markets continues, with LNG demand expected to increase 3.6 percent per year to 2035.” –McKinsey & company

Bottom Line: Mr. Cramer being “done with fossil fuel” is bottom talk born out of years of frustration. I think it maybe time to lean against his dark vision of the future of oil and gas.