The easy money era ended last year, as the U.S. Federal Reserve raised rates at the fastest pace since the 1980s to control 40-year high inflation. The COVID-19 pandemic has eased, the Russia-Ukraine conflict has reached a stalemate, and the global economy is now adjusting to long-lasting impacts that will usher in new investment themes.
Russia’s invasion of Ukraine has forced governments to focus more on alternative sources of energy, increasing demand for both fossil fuels and industrial metals at a time when global supplies have been constrained in the last decade. Historically, whenever a new energy source is unearthed, it has been added to the existing energy mix rather than completely replacing the older source.
We expect the global oil demand to remain relatively resilient, even in the face of higher Electric Vehicle (EV) penetration and increased renewables at a time of underinvestment in new fields. The Global Oil Capex peaked at nearly $650 billion in 2014, while in 2021 it was barely above $300 billion. Although climate change is raising the demand for green metals like aluminum, copper, and nickel, investment in mines has not kept pace with prices. The Global Mining Capex has fallen by half from its $25 billion peak a decade ago. Green metals will continue to benefit from increased decarbonization and capital spending. Both, the Inflation Reduction Act and RePower EU redefine the renewables outlook for the coming decade in both the U.S. and EU respectively. However, geopolitical and environmental factors will also keep supply tight. In Chile, proposed laws to change water usage by miners were defeated, but new royalty laws may increase taxation on copper mining. Political tensions in Iran and the continued war in Ukraine may further support prices.