“Formula for success: rise early, work hard, strike oil.” — J. Paul Gettyw
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Good morning!
Some readers might remember this: In the beginning of 2021, much of the world was still in lockdown as scientists sought a way out of the COVID-19 pandemic. With most travel and leisure activities halted and the global economy a fraction of what it had been pre-pandemic, Fundstrat Head of Research Tom Lee made a contrarian call that at the time was widely mocked: he told clients, readers, and followers to take a closer look at the energy sector.
Lee predicted that demand for energy would rebound, even as the industry grappled with supply constraints caused by years of underinvestment in infrastructure. The result, he argued, would be good for energy-sector stocks. “The entire energy complex is a buy,” he said at the time.
Yet even Lee didn’t know how right he was at the time, because practical, useful AI was still just a pipe dream back then.
After the economy largely recovered, after major energy companies notched years of record profits, and after we all more or less returned to whatever passes for normal life, energy industry observers acknowledged the sector’s recovery. Many argued that the post-pandemic recovery for energy companies might have been the last gasp for fossil fuels. Since then, they have been asserting that the world has reached, or is about to reach, peak fossil-fuel consumption. The thesis was that a rotation into sustainable or renewable energy sources would erode and ultimately eliminate demand for natural gas, oil, and certainly coal — perhaps by 2050.
One prominent supporter of this idea apparently no longer believes that. As reported in Bloomberg News, the International Energy Agency is about to assert in its next annual World Energy Outlook that demand for fossil fuels is likely to continue growing over the next 25 years. (Bloomberg’s claim about the IEA’s upcoming outlook revision could not be independently verified, and the IEA’s annual Outlook is typically published in October or November.)
That’s consistent with an observation that we’ve made in the current AI era — that it’s not an either-or situation regarding renewable energy and fossil fuels when it comes to the projected increase in power demands due to AI, cryptocurrency, and the continued rise of Big Data. Maximum output from both will likely be required.
Notably, however, that does not necessarily mean an immediate tailwind for energy stocks: Lee currently has a neutral allocation (relative to the S&P 500’s allocations) for the energy sector, while Head of Technical Strategy Mark Newton suggests an underweight, citing “good likelihood of crude decline” and thus “sharp underperformance” over the next month or two.
And despite the purported change to the IEA’s long-term outlook, the intragovernmental energy entity asserted last Thursday that recent OPEC+ moves are, in the intermediate term, likely to result in global supply rising faster than demand. The latter is arguably tied in part to tariff-related uncertainty impacting business decisions around the world, which we generally have viewed to be a temporary phenomenon.
Nevertheless, environmental concerns notwithstanding, there does seem to be a growing consensus that the demise of the fossil fuel industry isn’t as near as some had previously predicted.
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When do you think the world will reach “peak” fossil-fuel consumption? Click here to send us your response.
📧✍️Here’s what a reader commented📧✍️
Question: What has your experience (or the experience of someone you know) with the job market been this year?
Answer: My friends’ and family’s experience have shown that jobs are hard to come by at the top of the pay scale as well at the entry level. Senior managers and directors have been out of work for 9 months or more, while entry level workers are having a lot of difficulty because employers want a couple more years experience than just entry level. It’s been challenging for the last 12 months.
Catch up with FS Insight
The data yesterday from CPI and jobless claims is overall positive. We think the CPI rise is largely explained by housing and autos. And while other components are higher, this is still not pointing to a wave of inflation that requires Fed intervention. This is positive for cuts next week.
Technical
Overall, next week could be important given SPX has pushed up to the highs of the recent trend channel ahead of the FOMC meeting. I’ll believe weakness when I see it, but until SPX gets back under 6443, it will prove difficult to call for a trend change of any sort.
Crypto
Every cycle, a new player emerges as the next “major.” In 2017, it was ETH. In 2021, it was SOL. In 2025, it is HYPE.
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Of Interest