This Is Why Oil Is Set To Rise In 2H 2021

Banks don’t want to lend to oil companies. Furthermore, a lot of investment capital has gone to green energy projects which aren’t going to significantly lower demand for oil for over a decade. In the energy market, 5 years is a lifetime. We’re already seen significant gains in some oil stocks since last year. There is no need to worry about peak demand over 10 years from now. As more of the world enters the middle class demand will continue to grow.

Green Energy Bubble

This is a bubble in green energy stocks. It’s just like the tech bubble in the 1990s and the commodities bubble in the 2000s. As you can see from the chart, all three rose about the same amount in the same length of time.

Most people focus on the housing bubble in the 2000s, but there also was an emerging markets/commodities bubble in that period. The timing was slightly different as the housing bubble peaked in 2006 or 2007 depending on what data you use. The oil bubble peaked in 2008 when the price per barrel hit $147. If oil just rises enough to promote future fossil fuel production investments, the price will increase. If it forms a bubble likes in the 2000s, it has dramatically more room to go.

Junk Debt As No Risk?

What is junk debt anymore? The market is pricing it like it is nearly riskless. As you can see from the chart below, the yield on CCC rated debt is 6.42% which is a record low. If the bull market continues and financial conditions stay easy, this could fall further even if the 10 year yield rises. The spread would simply tighten further. The 10 year yield has risen in the past few months while CCC yields have fallen.

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