Lithium Vs. Oil: An Unstoppable Divergence In The Energy Market

Lithium continues to torch oil in 2017.

The Global X Lithium & Battery Tech ETF (NYSE: LIT) has been hyperbolic all year — up 57% to date.

Meanwhile, the iPath S&P GSCI Crude Oil TR ETN (NYSE: OIL) is down 16%.

The divergence between these two key energy commodities is shocking.

See for yourself…

chart: A Growing Divergence

So there are two schools of thought here…

Old School: Divergences among two assets operating in the same sector — in this case energy — never last. So a profit opportunity exists as lithium and oil race back toward equilibrium.

New School: The demand dynamics inherent to lithium are so powerful that they’ve decoupled from every other energy resource. So expect lithium’s divergence with oil to widen even further.

So whose camp are you in?

The answer to that question could put a load of money in your pocket.

Our job is to make sure you’re in the right camp.

Supply vs. Demand

When deciding which camp to fall in, it’s important to note that oil and lithium are at entirely different points in their product life cycles.

We have been extracting oil commercially since at least 1859. At this point, we’re close to “Peak Oil” — when production begins to decline because of depleted reserves.

Meanwhile, the world’s lithium reserves are only beginning to be tapped since substantial demand for lithium has only hit recently.

In other words, we’re nowhere near “peak lithium.”

Lithium is the 25th most common element in the Earth’s crust and is also substantially present in seawater, so deposits are plentiful.

There are 14 million tonnes of proven reserves ready to be used, or almost 50 years’ usage at 2020 production rates. And estimated reserves are at 181 million tonnes, or 600 years’ usage at 2020 levels.

True, some deposits are below commercially viable concentrations. But we still have considerably further to go on the “learning curve” of lithium extraction. So even as richer deposits are exhausted, we shouldn’t see a spike in prices.

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Michael Molman 1 year ago Contributor's comment

I have been following #lithium and #cobalt very closely and agree 100% with this analysis. I am growing more and more bullish on lithium refining, since I believe lithium prices will eventually begin to plateau when production ramps up, this will adversely effect miners. Do you know of any good lithium refining stocks that would help me take advantage of this boom?