macro kaki: No easy fix for the world’s energy woes

18 Oct 2021

By Mooris Tjioe, Analyst, Phillip Futures

This week in summary

☕️ Airline outlook shaky as rising fuel prices threaten to eat into profits.
☕️ Major US bank CEOs mostly agree that inflation looks increasingly permanent.
☕️ The USA will allow vaccinated travellers into the country by 8th November.
☕️ US workers are still quitting in record numbers even as wages continue climbing.
☕️ China growth forecasts slashed as power and property woes weigh.
☕️ S&P500 has best day in months as earnings season begins.


No easy fix for the world’s energy woes

Where there’s a shortage, there’s a trade


⚡️ Global measures of energy prices have spiked to pre-COVID levels.
⚡️ Coal is back – but it won’t solve the world’s issues.
⚡️ Supply chain woes will likely see energy prices continue spiking.
⚡️ Alternate energy is enjoying improved sentiment in the near-term.

The US crude oil benchmark (Western Texas Intermediate) climbed to over $81 recently, the highest price seen since end-2014. Crude oil benchmarks in general have also risen along with a slew of other energy commodities thanks to rising demand for oil, although overall demand is notably not yet at pre-COVID levels.

Chart 1: Bloomberg chart of International Crude Oil and Liquid Fuel consumption from 2017 to 2021, data from US Department of Energy

After oil consumption cratered last year thanks to a literal global lockdown on movement, oil demand has rebounded sharply and is currently on a steady – less precipitous rise as compared to energy prices. On the outlook in the coming quarters, OPEC has lowered the forecast for oil demand in 2021 likely over concerns of the Delta variant slowing down economic activity for much of the year.

Oil demand is however also expected to rise on gas-to-oil switching

With natural gas prices recently having doubled from pre-pandemic prices in just a matter of months on surging demand (the UK is seeing a +700% increase in natural gas prices over the past year), we are currently seeing widespread “gas-to-oil” and “gas-to-coal” switching on the demand-side, as utilities companies switch from natural gas to now more practical crude oil and coal commodities to meet energy needs. Thus, crude oil demand in the final quarter of the year is expected to receive a year-end boost.

However, a word of caution may however need to be inserted here – there are only a limited number of “oil-fired” power plants in North Asia and Europe, meaning that any switch in demand from natural gas to crude oil may find a natural limit on its capacity – particularly in cheaper Low-Sulphur Fuel Oils (LSFOs). Furthermore, signs are emerging that coal usage is on the rise across all the major economies – the USA, Europe, China, and India – perhaps somewhat a surprising backtrack to some, given relatively frenzied investment and regulatory action on cleaner energy generation over the past year. For instance, Chinese coal imports recently rose +18% month-on-month, while US coal plants are on track to burn up to +23% more coal this year. While supply chain and sheer production capacity limitations would limit how much coal can substitute natural gas for power generation, it is likely that some expectations of a massive spike in crude oil demand in the near-term is likely overdone.

TL;DR: Oil demand is forecast to rise to make up for natural gas shortfalls – but the near-term price squeeze may be unrealistic given the structural limitations of switching natural gas power generation for crude oil on such short notice.

Energy prices are more-or-less back at pre-COVID levels

Moving on, the BCOMEN chart – made up of futures contracts on crude oil, heating oil, unleaded gas and natural gas, is now back to pre-COVID levels, a particularly remarkable spike given that the world saw negative oil prices only as recently as last April.

Chart 2: Bloomberg Energy Index (BCOMEN) between 2018 to 2021

Cuts in natural gas exploration/production in 2020 means near-term relief is unlikely

Natural gas has understandably contributed to an outsize spike in energy prices in recent months due to the aforementioned doubling in its price. Investment in natural gas exploration and extraction saw cutbacks early into the pandemic last year, and the world’s economic recovery – and demand for natural gas, has been a lot stronger than anyone in the energy sector has seemed to have anticipated.

Given the bleak outlook for supply to increase by enough to match rising global demand however, it is likely that the spill over in demand for other sources of fuel such as coal and crude oil will continue driving energy prices past its pre-COVID levels – at least for a spell.

TL;DR: Energy prices are now at pre-COVID levels – and are expected to continue rising as logistical issues continue to provide a headache of unprecedented magnitude to the world’s supply chains.

How are energy stocks doing?

Energy stocks have been lonely – at the bottom of the S&P500

Make no mistake – traditional energy stocks have long been a laggard in the S&P500, being consistently placed at the bottom of the pack in terms of returns year after year for the better part of the past decade. Oil companies such as Petroleo Brasileiro (-29%) and Exxon Mobil Corporation (-13%) are still down from the beginning of 2020.

Using the S&P500 Energy Index (S5ENRS) as a benchmark, we can see in Chart 3 below that the S5ENRS has lagged the stock market through 2020 and 2021, somewhat continuing over a decade of underperformance against other stock market sectors (although energy stocks did give market-beating returns for investors with a shorter timeframe from end-2020 to the middle of 2021).

Chart 3: Bloomberg data comparing percentage returns from 2020 to 2021

TL;DR: Energy stocks have tended to underperform the wider stock market over longer timeframes but may be attractive near-term plays.

Have you considered alternative energy stocks?

Zooming out, virtually all kinds of energy commodities and stocks are seeing upgrades in sentiment that perhaps warrants investor attention better. For instance, stocks in “alternative” energy such as SolarEdge Technology Inc (+222% since 2020) and Gevo Inc (+56%) have largely beaten the market, with sector benchmarks in Solar Energy (Invesco Solar ETF: +176%) and Uranium (Global X Uranium ETF: +160%) easily beating returns found in benchmarks just about anywhere.

The Global X Uranium ETF is up +83% YTD, rising over +60% since mid-August as energy crunch worries continue to grow – and speculation over the need for suitable energy substitutes rise.

However, further rises in the sector have yet to reckon with the nuclear power industry’s biggest obstacle – politicians. While the world’s need for energy is dire, it remains to be seen if countries around the world will turn to nuclear power, in a period where major economies such as Germany and Japan have increasingly sought to distance themselves from nuclear power generation in recent years. Already, new Japanese Prime Minister Fumio Kishida (hometown in Hiroshima) has stated that it is “crucial to restart nuclear power plants, but he faces stiff resistance both from various Japanese politicians, as well as his own constituents.

Solar and wind energy may see near-term choppiness

In the meantime, solar and wind energy is growing at a breakneck pace in terms of capacity installation – and likely needs no introduction to most investors regarding their potential.

However, besides still only making small contribution to the power grids of major economies, the past month has seen widespread disruptions in renewables. While the European Union appears to have been largely successful in deploying renewable energy generators, other countries have seen intermittent power from a mix of solar, wind (lower windspeeds), and hydroelectricity (i.e. from rivers drying up), thus being left unable to alleviate the shortfall in power generation from disruptions in fossil fuel supplies.

Where does that leave us?

It perhaps remains to be seen how nations will deal with the fallout of the ongoing energy crisis. Discussions in the coming quarters are likely to bring up how renewable energy sources have fared during this period, and our first clues may come in the ambitiously-named COP26 2021 United Nations Climate Change Conference that begins at the end of October.

With carbon emissions this year forecast to reach pre-pandemic levels despite progress earlier in the pandemic, the world may see politicians finally band together to conclusively decide upon what renewable energy sources and environmentally friendly targets to focus on, rather than herald a return to relatively more reliable fossil fuel power generation methods.

Chart 4: Or if the Kyoto Protocol (1992) and Paris Accords (2015) were anything to go by, COP26 may require some managing of expectations…


  1. Renewable energy – such as in solar, wind, and nuclear energy will likely see continued interest in the coming quarters.
  2. Solar and wind energy may however see near-term headwinds due to its recent underperformance in some economies suffering from fossil fuel shortages.
  3. Will nuclear energy make a comeback? Political developments over this are sure to make headlines in the coming quarters as the energy crisis particularly in Europe deepens and should be monitored.


The S&P500 tends to perform best in Q4

S&P 500Q1Q2Q3Q4
10-Year Average Quarterly Return (%)2.733.431.394.65
Source: Bloomberg data on S&P500 returns on a quarterly basis across 10 years

Using the S&P500 as a benchmark for the stock market, Q2 and Q4 tends to see better returns. For Q4, much of those returns have been attributed to a traditionally strong Q3 earnings beat, as well as the tendency of companies to cover the following year’s outlook in their earnings calls as well – thus tending to drive more investor optimism than usual.

Looking at the figures, estimates show that the S&P500 is expected to see year-on-year earnings growth for the quarter to be reported (Q3), to come in at more than 27%, a more “modest” growth rate after last quarter’s 88% growth rate.

Diving deeper, some models based on the tendency of S&P500 companies to beat expectations by around 19.1% on average (over the past 5 quarters) are forecasting constituents to report overall earnings growth of more than 30% for a third consecutive quarter. Such growth projections are perhaps crucial for the index at its current valuations, given that it is trading at a forward PE ratio of around 20.5, above its 5-year average of 18.3. However, with a range of bearish factors weighing on sentiment such as higher oil prices, sticker-than-expected inflation, rising labour costs, and workers reluctant to return to the workforce, how investors will gauge the potential of the stock market to further stretch valuations in the coming quarters may very well hinge on guidance given by CEOs during this earnings season.


Biden’s polling average plunging to new lows – how will it affect the market?

Chart 5: Bloomberg chart of Real Clear Politics polls showing approval of Pres. Biden (blue) vs Pres. Trump in the first ten months in office

Even in the wake of the undoubtedly botched Afghanistan withdrawal, Biden’s approval rating continues to plunge to new lows, approaching even Donald Trump’s relatively acrimonious ascension four years ago.

Realistically speaking, this decline may be worrying for investors betting on political stability, particularly in terms of the Democrats massive spending bills. One aspect of the market pricing in infrastructure spending is that they expect infrastructure plans to at least hold between administrations.

However with Donald Trump recently rising as a favourite amongst bettors to win the 2024 Presidential elections and the Democrats facing prospects of losing the House of Representatives in the 2022 Congressional mid-terms, investors may be less sure of said continuity as Biden’s approval continues to plunge.


  1. Swiss companies warned of possible power shortage in coming weeks
  2. What does a Bitcoin ETF mean for the future of Bitcoin?
  3. President Xi clarifies that “common prosperity” does not mean “equality
  4. “Tidal wave” of evictions in the USA just isn’t happening
  5. Japan’s Prime Minister “committed” to restarting nuclear reactors after Fukushima


TuesdayBank of New York Mellon CorpPre-market
19th OctJohnson & JohnsonPre-market
Silvergate Capital CorpPre-market
United Airlines Holdings IncPre-market
Interactive Brokers Group IncPre-market
The Procter & Gamble CompanyPre-market
Phillip Morris International IncPre-market
Intuitive Surgical IncPost-market
 Netflix IncPost-market
WednesdayAbbott LaboratoriesPre-market
20th OctCSX CorporationPost-market
Tesla IncPost-market
Lam Research CorporationPost-market
ThursdayAmerican Airlines Group IncPre-market
21st OctBiogen IncPre-market
IQVIA Holdings IncPre-market
Nucor CorporationPre-market
Crocs IncPre-market
Chipotle Mexican Grill IncPost-market
Intel CorporationPost-market
FridaySeagate Technology Holdings plcPre-market
22nd OctHoneywell International IncPre-market


1Spot Brent Crude Oil (UKOIL)(MT5: UKOIL) 
2Spot WTI Crude Oil (USOIL)(MT5: USOIL) 
3Petroleo Brasileiro(MT5: PETROBRAS-NYSE) 
4Gevo(MT5: GEVO-NYSE) 
5SolarEdge Technologies Inc(MT5: SOLAREDGE-NDAQ) 

Shares CFD is available for trading on Phillip MetaTrader 5 (MT5).

Features of trading CFD

  • Trade in both the bull and the bear markets
    The ability to enter a long and/or short position allows traders to take advantage of both rising and falling markets.
  • Smaller barrier to entry
    CFDs typically have flexible and smaller contract sizes. This means that traders will be able to enter into a CFD contract with a modest amount of capital.
  • No expiration date or risk of delivery
    Unlike futures which commonly have a fixed expiration date, CFDs allow traders to perpetually hold the position(s). CFDs are cash settled, no need to worry about the delivery of the underlying asset.

Trade US, HK, SG Shares CFDs at zero commission on Phillip MetaTrader 5, a dynamic platform that offers low spreads. Integrated with Autochartist and Trading Central Indicators, and available on mobile, web and desktop app, you will never miss a trading opportunity with Phillip MT5.

Download Trading Central’s Market Buzz for updates on more topics.

What’s more? Phillip MT5 is now supported on Mac OS! To install, simply download the file below and complete a simple installation process.

An Exchange Traded Fund (ETF) is a marketable security that is formed to track nearly anything, ranging from a specific index, sector, commodity, or increasingly, theme. They are most commonly used to track a basket of stocks, and can typically be accessed through the same channels as regular stocks. ETFs are typically separated into passively-managed ETFs that simply mirror the security they are tracking (e.g. the STI), and actively managed ones that attempt to deliver higher returns or specific investment objectives, often with a pre-specified theme in mind (e.g. ARK Invest’s Innovation ETF).

Why should I trade in ETF CFDs?

  • ETFs have been growing in popularity over the years. 2020 was the best year for ETFs yet, with global equity ETFs seeing more than $1T in inflows within a 12-month period. Using CFDs to gain exposure to ETFs allows for greater capital efficiency because only a portion of the contract value is required as margin to establish a position.
  • ETFs are particularly popular with investors seeking a relatively hassle-free investing experience, while desiring exposure to a range of specific and relatively understandable securities. Trading ETF CFDs brings greater convenience by eliminating the need for traders to hold multiple currencies in order to access global ETFs.
  • An investor wanting exposure to the post-pandemic economic recovery could open a position in the well-known SPDR S&P 500 ETF (SPY), which tracks the performance of the S&P 500. Another investor that may be convinced of the future importance of Environmental, Social and Governance concerns (ESG) may find the increasing selection of ESG-themed ETFs that track a basket of high ESG-rating companies to be a good investment, rather than cherry-picking individual equities by hand. ETF CFDs can act as a powerful tool for traders can profit from both directions of the market by taking on long or short positions.

A look at two ETF CFDs we offer:

1) Has the ARKK been sunk?

ARK Innovation ETF (ARKK) ARKK is an actively managed ETF by ARK Invest that invests in a range of companies based on their innovative and industry-disrupting potential. ARKK’s largest holdings are in companies such as Tesla, Square, and Zoom. ARKK is down around -33% from peaking on 12th Feb and is currently in the red for the year to date as the market experiences a risk-off outflow of funds. Superstar fund manager Cathie Wood has however been consistently doubling down on her bets, buying even more shares in growth stocks that are going through their own tumultuous periods such as DraftKings, Peloton, Teladoc, and Tesla. In her view, ARKK is playing the long game, and remains steadfastly convinced in the long-term prospects of these growth stocks beyond this current bout of volatility. Similarly on outflows, investors are still betting big on ARKK as ARK Invest has only lost about $1.2B in assets this year across all its six funds, compared to seeing an inflow of $15.1B during the same period. Recently, investors have been nervously eyeing ARKK’s basket of tech stocks as their future earnings potential remain vulnerable to erosion through high inflation – the dominant concern of the market in recent weeks. As commodities – the major contributor to the recent heightened inflation fears – drops sharply from record highs, are investor concerns over hyperinflation overblown?

2) Searching for exposure to Asian equities?

iShares MSCI Asia ex Japan ETF (AAXJ) The AAXJ is currently trading -10.6% adrift of all-time highs seen in February, giving up gains in tandem with an Asia-wide equity sell-off at the time. Given that slightly over 40% of the ETF’s holdings are based in China, the ongoing tumult seen in Chinese equities currently have carried over nearly perfectly in the AAXJ, as Chinese investors take a breather after the stellar gains made over the past year. Looking ahead, Asia – and particularly China, is steaming ahead with its economic recovery. China is widely expected to be one of the best-performing major economies this year, providing a major boost to the outlook for corporate earnings. As the rest of Asia and the world gradually opens up their own economies, AAXJ is likely to again benefit from strong Asian outperformance amidst a strengthening trade outlook.

CFD is available for trading on Phillip MetaTrader 5 (MT5).

Features of trading CFD:

  • Trade in both the bull and the bear markets
    The ability to enter a long and/or short position allow traders to take advantage of both rising and falling markets.
  • Smaller barrier to entry
    Flexible and smaller contract sizes. This means that traders will be able to enter into a contract with a modest amount of capital.
  • No expiration date or risk of delivery
    Unlike futures which commonly have a fixed expiration date, CFD allows traders to perpetually hold the position(s). CFD is cash settled, no need to worry about the delivery of the underlying asset.


Benefits of using Phillip MT5:

Trade at zero commission on a dynamic platform that offers low spreads. Integrated with Autochartist and Trading Central Indicators, and available on mobile, web and desktop app, you will never miss a trading opportunity with Phillip MT5.

Register for a FREE 30-day Phillip MetaTrader 5 Demo Account

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