Back when the oil price spiked to nearly $150 a barrel, in 2008, it kicked off a huge controversy about the degree to which "financial speculators" were to blame (here's a great retrospective). In fact, none other than Gary Gensler--who became chair of the CFTC, and is now chair of the SEC--said at the time he believed speculation "was partly behind the surge in commodity prices."
If energy prices (particularly natural gas) stay where they are today, expect this to rear its head again. In fact, overseas, it's already happening. "Robot Hedge Funds Reap Record Gains From Europe's Energy Crunch," Bloomberg reported this morning. Basically, quant funds owned by Gresham, Systematica, and Man Group have turned to "relatively less liquid markets" like cheese, Turkish scrap steel, and European energy as returns in traditional markets have dried up. The funds mentioned are now up between 23% and 39% year-to-date. (You could've just held Oracle and been up 35%, but I digress.)
Anyhow, these quant funds--and plenty of "value" investors--are now chasing alpha by laying on the energy bets, to the chagrin of policy makers and consumers. But I would point out that none other than the Oil King himself, trader Pierre Andurand--who correctly predicted oil would collapse into negative territory last year--is now "bearish on the long-term prospects of oil, and sees renewable energy as the market to go long," according to an interview he did with Forbes earlier this year.
This is a huge deal. Andurand thinks the price of carbon is going up--and after that interview in February, recall, European carbon prices spiked to a record high over the past month, at over 60 euros per tonne. "Andurand has become so bullish on clean energy, he's planning to launch a long/short fund that...would give him the ability to bet on emerging clean technologies at the expense of declining carbon producers, which he believes are substantially overvalued, " according to Forbes.
Now, investors may chortle given the recent performance of clean energy stocks. Just this morning, Keybanc expanded its alternative energy coverage to include five new names, only two of which they gave overweight ratings (Enphase and Nextera). The rest, including First Solar (-6% year-to-date), Hannon Armstrong (-13%), and Atlantica (-5%), are at sector weight for reasons ranging from supply chain issues to financing and rate concerns. Only Nextera is even positive on the year among this group. Meanwhile, energy--comprised largely of oil and gas stocks--is the second best-performing sector in the market, up 25% since January.
But again, Andurand thinks the real money is to be made in the enormous clean-energy transition that if anything will pick up speed the longer oil and gas prices remain high, especially as the cost of solar and wind energy continues to plunge. (That's exactly why OPEC exists--not just to keep the oil price high enough to make a profit, but also to keep it low enough to keep the world addicted to it.) Betting on the clean energy transition can also imply not just the companies but also the commodities, like copper, aluminum, and nickel, which will be critical in producing it.
Analysts already think the global market share of internal combustion engine cars peaked back in 2017. Andurand thinks oil demand more broadly will peak "around 2027." And the higher "speculators" push prices today, the sooner that day may come.
See you at 1 p.m!