With a new year about to commence, I wanted to know more about the energy sector’s prospects. After all, the world’s most valuable commodity is crude oil. At the same time, renewable energy is in the vanguard of technological innovation. The investment opportunities in energy are vast.

This week, to glean actionable insights on these topics, I interviewed my colleague Robert Rapier, our in-house energy expert and chief investment strategist of Utility Forecaster. Robert also helms Rapier’s Income Accelerator and Income Forecaster.

Robert has several years of experience in the energy patch; you can usually find him inspecting an oilfield operation somewhere in the middle of the country.

The guy in the hardhat? That’s Robert. He’s no armchair analyst.

Robert has two decades of in-the-trenches experience in a wide range of fossil fuel and biofuel technologies, including refining, natural gas production, gas-to-liquids, ethanol production and butanol production.

Let’s see what Robert has to say about the energy sector (and about utilities). My questions are in bold.

Gasoline prices have been falling for several weeks. I hear a lot of glib narratives from political pundits as to why this is occurring. What are the real reasons?

Gasoline prices are on the way down, and I am seeing a lot of chatter from people who are convinced this is political. After all, we are headed into an election year, and lower gasoline prices certainly help politicians get reelected.

But that’s not why prices are falling. Right now, oil prices are falling, and that certainly helps. The underlying price of oil is the single largest factor that drives gasoline prices, but there is a seasonal factor behind the changes in gasoline prices.

In fact, gasoline prices fall almost every year between August and November. As someone whose job it once was to blend gasoline for ConocoPhillips (NYSE: COP), allow me to explain the reasons.

While many attribute these changes to potential manipulation by vested interests seeking electoral advantages, the actual explanation is two-fold.

Because gasoline evaporates, and given the contribution of gasoline vapors to smog, the U.S. Environmental Protection Agency (EPA) strategically regulates gasoline blends seasonally to minimize such emissions. The EPA achieves this regulation through seasonal limits.

The second major factor is that this seasonal shift occurs after the high-demand summer driving season, aligning increased supplies and reduced production costs with falling demand. This confluence almost always leads to a decline in gasoline prices during the fall, benefiting consumers.

This year’s decline is typical of the normal pattern of falling gasoline prices in the fall, regardless of whether it is an election year.

Explain the factors behind the latest production cuts initiated by OPEC+.

On November 30, 2023, OPEC (Organization of the Petroleum Exporting Countries) and its allies, collectively known as OPEC+, agreed to cut oil production by 1 million barrels per day (bpd) starting in January 2024. This decision was driven by several factors, but it might be helpful to consider OPEC’s motivations.

In much of the world, particularly countries that are net crude oil importers, OPEC’s motivations are frequently at odds with the economic desires of those countries. OPEC seeks to maximize the value of the crude oil reserves of member countries. This is generally official government policy.

Contrast that to the government policies of the U.S., which generally revolve around a desire for stable but low prices for energy. That isn’t necessarily what U.S. oil companies seek, so that often pits the objectives of the U.S. government against those of the U.S. oil industry.

In OPEC countries, the goals are aligned. In many cases, the governments of these countries generate most of their revenues from the sale of crude oil into the export market. So, OPEC seeks the highest possible oil price they can get, without putting the world into recession, or creating incentives for rival production and conservation efforts.

Let’s shift the discussion to renewables. “Green energy” is sometimes over-hyped, but it continues to provide enormous investment opportunities, doesn’t it?

Definitely. Over the past decade, the global growth rate of renewable energy trounced every other energy source. During that period, modern renewables, excluding hydropower and geothermal, grew exponentially, at an average annual rate of 12.6%.

Renewables were the only energy category that grew globally at double digits over the past decade. The following chart depicts the sharp rise of renewable energy consumption, on a global basis:

We seem to be entering a new energy era, whereby wind and solar outpace hydropower.

Yes, that’s true. Solar electricity saw a historic rise in 2022 with a 25% increase from 2021, surpassing wind power’s growth.

Despite being a leading renewable energy source for years, hydropower’s growth was dwarfed by wind and solar in 2022, marking a shift in global energy consumption patterns. I expect these trends to continue throughout 2024.

You predicted last year that total U.S. oil production will again rise in 2023 and set a new annual production record. You were correct, weren’t you?

Yes, I was right on the money. This is probably the biggest story of the year in the oil and gas sector. Based on weekly and monthly numbers from the U.S. Energy Information Administration (EIA), in mid-December 2023 a new oil production record was set.

In fact, data provider S&P Global Commodity Insights noted in a recent press release that the U.S. is currently producing more oil than any other country in history.

The energy sector has slumped this year, driven by declines in oil prices and a cool-down from a torrid 2022. But we’ve recently seen a slew of mergers and acquisitions in the upstream sector; this consolidation should pay off for investors who are proactive.

I also think oil prices will rise in 2024, lifting the share prices of energy companies across the spectrum. The energy sector right now is packed with value and income opportunities for investors.

You’re also an expert on the utilities sector. What’s your outlook for utilities in 2024?

The utility sector has been battered this year, but it may finally be turning a corner, as utilities stocks start to gain traction.

The Fed’s decision on December 13 to pause rate hikes for the third month in a row is a tailwind for income stocks like utilities in 2024. If we see an interest rate cut early in the new year, utilities should be among the best performers as money rotates back into the sector.

Thanks for your time!

Editor’s Note: As evidenced by the above interview, Robert Rapier is one of the top energy and utilities strategists in the world. If you’re interested in his latest investment recommendations, click here for details.

John Persinos is the editorial director of Investing Daily.

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