What green energy, my expanding waistline, and the price of oil have in common

In echoes of the flawed public health advice of the 1980s, governments are taking action – but not necessarily the correct action – to be “greener”. That will drive the oil price up, says Dominic Frisby. Here's why.

Like you I’m sure, I‘m quite a few kilos heavier than I like to be. I began 2020 at 83kg, feeling as though I should be two or three kilos lighter. Here we are, 18 months later, and I’m 89kg, afflicted with the same lockdown expansion that has got to so many of us.

If you’re wondering what my expanding waistline has to do with anything financial, then all I have to say is – read on.

The green crusade is in danger of backfiring badly

I put my unwelcome weight gain down to two things. First, the loss of incidental exercise – walking to the tube station in the morning, that kind of thing – and, second, to the fact that being at home, I never seem to miss a meal.

Before Covid, running around town on busy days, there would always be times when I’d skip meals, meaning I would effectively be intermittent fasting. 

Amazon, no doubt knowing about my weight concerns (as it seems to know everything), suggested I read Why We Eat (Too Much): The New Science of Appetite. The author, Andrew Jenkinson, traces today’s obesity crisis to the changes in diets that came about in the early 1980s – increased sugar and, especially, trans-fat consumption. These changes came about as a result of flawed public health advice.

Governments based their new dietary advice on flimsy science, Jenkinson argues, under huge lobbying pressure from the food industry. Fast forward to today, and I can’t help thinking that something similar is happening with green energy. There are parallels galore.

Governments are under huge lobbying pressure to be “greener”. As a result, they are taking action – practically competing with each other in many cases – and we now have these extraordinary targets in place. Today’s latest is that halogen lightbulbs are to be banned from September.

I can’t help thinking it is all going to backfire badly. There’s the cost, which takes two forms. Firstly, financial. “The bill for decarbonising the economy is estimated to surpass £100,000 per household. Whitehall claims the number is lower but won’t let anyone see their calculations,” says Steve Baker, MP.

£100,000 per household – who can afford that? Then there’s the environmental cost. The amount of fossil fuel required to realise the green energy revolution, if only to mine the required metals in the timeframes given, means the revolution will be anything but green.

I don’t think anyone is pro-pollution, by the way. We all want to see a world with cleaner oceans, better air quality, more forests and so on. If cleaner, cheaper, more efficient energy sources than burning fossil fuels can be found, we will, all of us, embrace them.

Better, cleaner, more efficient energy consumption is inevitable. It’s part of progress. Humans have been getting better at consuming energy ever since we first stepped onto the fertile planes between the Tigris and the Euphrates, and probably before. So I do not doubt the good intention of those involved in this targeting. It is my trust in the competence of governments that is low.

Which brings me, belatedly, to the investment point of today’s Money Morning. I think the oil price is going higher. A lot higher.

Oil is only heading higher from here

At $70 a barrel, WTI crude is now up by more than $100 from the “minus $37” lows it hit in the Covid panic last year. It’s in an uptrend and, as Charlie Morris notes in his latest Fleet Street Letter, is trading above its five-year averages.

Oil demand is not going away. Green energy revolution or not, “aviation, shipping and petrochemicals will continue to rely on oil for some time”, says Morris.

Oil demand is creeping back towards its long-term trend. Pre-Covid, global oil demand stood at 99 million barrels a day. It fell to 91 million with the Covid shock. The IEA says it will pass 100 million in 2023. Global money printing is also likely to push prices higher. In fact, the oil price is probably a better measure of inflation than government measures such as CPI.

In the meantime, the oil industry is being attacked. “US President Joe Biden has suspended oil drilling leases in Alaska,” notes Morris. “A Dutch court has ordered Royal Dutch Shell to cut 45% of its 2019 greenhouse gas emissions by 2030.” It’s hardly incentivising people to invest in exploration.

Who’d work in the oil industry? It’s a difficult and dangerous business; the hard work and risks, the far corners of the earth you have to go to, require compensation. It’s much easier to go and design an app. You know what happens when supply can’t meet demand.

Charlie Morris again: “The energy market is a complex space that has been developed over decades. To interfere with it, on such a large scale and in such a short period of time, is madness. Perhaps governments and inter-governmental agencies such as the IEA know that.

“However, most of the individuals who are involved will be long out of the public eye by the time that the flawed plan is exposed as a failure. To implement ‘net zero’ by 2050 means we will return to mass poverty. It will not happen.”

We are not here to judge, only to seek out investment trends. So we sigh and we shake our heads, but we see oil quite comfortably heading past $100 next year. It might even make it to $150. Remember the crisis last time oil went to $150?

Daylight Robbery – How Tax Shaped The Past And Will Change The Future is now out in paperback at Amazon and all good bookstores with the audiobook, read by Dominic, on Audible and elsewhere.

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