February 7th, 2022

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Dear Retail Investor,

This week WTI crude, the US benchmark for oil, hit $92 a barrel, its highest level since 2014 – as geopolitical tensions between Russia and the Ukraine heightened and a cold snap in Texas caused concern over supply disruptions.

Meanwhile, Europe is grappling with a severe natural gas crunch and global demand for coal has surged to record highs as economies continue to recover from the pandemic.

According to the International Energy Forum (IEF), investment into oil and gas projects slumped 30% after the pandemic hit in 2020 and spending on new projects will need to reach $4.7 trillion over the next decade as a whole to meet demand. The IEF warned that “Insufficient upstream investment would result in more price volatility and spur adverse economic consequences.”

But the IEF’s call for increased investment into new oil and gas projects is at odds with what climate activists and some other energy bodies are pushing for. For example, the International Energy Agency (IEA) has called for a complete cessation of all new investment into fossil fuels if the world is to achieve net zero emissions by 2050.

Yet the IEA also projected in its 2020 World Energy Outlook that as the world’s population grows and poverty is reduced, energy demand will rise sharply. The IEA is projecting that between now and 2040 the demand for natural gas will rise by 31%, and the demand for oil will increase by 21%.

Source: IEA 2020 World Energy Outlook 

As you know, rising demand + limited supply = higher prices.

“If oil is on the rise and natgas is on the rise, it is going to mean an increase in earnings for those companies that are involved in the energy sector,” Robert Pavlik, senior portfolio manager at Dakota Wealth Management, told Reuters.

So have you already missed the bull run? Not necessarily. Bank of America commodities strategist Francisco Blanch says he sees a case for $100/ barrel oil in 2022 as the world begins to face a serious supply crunch, citing pent up demand after Covid, and a reduction of mass public transportation use in favour of private vehicles as reasons for increased demand. On the supply side, Blanch says that increased regulatory hurdles and a reduction of investment into the oil & gas sector in favor of ESG investing have set the stage for a situation where supply won’t be able to keep up with demand. And if you look at the chart below, although the energy sector is up nearly 60% over the past 12 months, it has still underperformed over the past decade, indicating that we are still early in this bull cycle.

Until next time,
– Dear Retail Investors Editorial Team

In This Issue:

Spotlight: If ever there was a time to invest in Copper, it is now.
Spotlight: If ever there was a time to invest in Copper, it is now.
Opinion: Is water one of the most overlooked investment opportunities?

Spotlight

Copper in 2022 – the “New Oil” is poised for liftoff

Copper had a nice ride in 2021.

After a stomach-churning 2020, the red metal went on to rebound sharply in 2021, hitting an all-time high of $10,512 per metric ton on May 9, 2021 – an increase of 130% compared to March 2020’s pandemic lows.

As was the case with most commodities, copper prices jumped for several reasons: global supply-chain disruptions, which led to reduced output from Chile and Peru (the world’s top copper mining jurisdictions), economic stimulus, inflation, and the rollout of COVID-19 vaccines.

But it also started taking on a new narrative.

Suddenly, banks like Goldman Sachs starting calling copper the “New Oil.”

Market Moves

As the semiconductor industry undergoes explosive growth, which small-caps should you be watching?

I always wanted to be a travel writer.

Once I even churned out a 150,000-word manuscript about my misadventures in South Asia.

But all I got from that effort was a wastebasket full of rejection letters.

(Sigh…)

Yet today I am a travel writer… just not the kind that chronicles foreign escapades.

Instead, I compose articles about the markets from wherever I happen to find myself.

I’ve written from Aruba… South Africa… Spain… the UK… Morocco… not to mention from all over the U.S.

What makes this globe-trotting lifestyle possible?

Semiconductor chips.

Opinion

Liquid asset: is water one of the most overlooked investment opportunities?

I once trekked through the Himalayas.

In preparation for that trip, I put together an array of equipment I thought I’d need.

The most important piece was a portable water purifier.

I knew it would come in handy for purifying water from mountain streams and lakes.

But after two weeks using it in Kathmandu – the first stop on my trip – the filter became hopelessly clogged.

WTF?

That filter was supposed to last for six months!

Was it defective?

Nope.

I made that determination after putting in another filter… which also got all clogged up in a couple of weeks.

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