It’s Your Money: Investing in energy

The world is gushing oil. Fracking has raised North American production. And Saudi Arabia, which historically has cut production to support prices in times of weakness, is pumping out oil at a record pace.
Excess supply has cut the price of crude by more than half in the last nine months. It’s being socked away in storage facilities that are near capacity. Iran has stored millions of barrels in tanker ships that could come to market if sanctions are lifted, further depressing prices.
Here’s how the drop in oil prices might affect investors and consumers.
At the pump: The average price of unleaded regular gasoline in California has dropped from $4.13 a gallon last May to $3.15 now. That makes gas-powered vehicles cheaper to drive. So doesn’t that hurt sales of electric vehicles?
Nope. Tesla said sales of its electric cars hit a record in the first quarter, up 55 percent from last year. At Zero Motorcycles of Scotts Valley, sales of electric motorcycles are also accelerating.
“Motorcycle sales pick up in the spring,” said Jay Friedland, the company’s vice president of government relations. “Based on what our dealers are doing, business is better than ever.”
Money isn’t the only concern of electric vehicle buyers, Friedman said. There’s also the very Silicon Valley desire to have the latest “whiz-bang technology.” And clean-air vehicles allow drivers to use the carpool lane, which can save hours a day in traffic-clogged Silicon Valley.
There are also government incentives. You can get a federal tax credit of up to $7,500 for buying a new electric car or plug-in hybrid. The state also offers a $900 rebate on electric motorcycles, a $2,500 rebate on electric cars and a $1,500 rebate on plug-in hybrids, Friedman said.
He said 70 percent of electric vehicles are leased, partly because the federal tax credit enables companies to buy them at a low net cost, and then pass that savings on to drivers who lease them.
On your roof: I would expect that lower oil and natural gas prices would ease fears of higher PG&E bills, and hurt the demand for solar panels. I asked Jeff Parr, owner of Solar Technologies in Santa Cruz, what impact the trend is having on his business.
“No impact,” he said. “It’s total non-factor. Utilities can’t use oil to generate electricity in California anymore. Natural gas prices have also dropped, but that’s only one piece of the pie. Another is hydroelectric power. We have a drought, no snowpack and very little runoff, so those plants are going offline. That raises demand for natural gas. But overall, the cost for PG&E to provide electricity to homes and businesses is so high that demand for solar panels keeps growing.
“People trust solar now.” Parr said. “They know it’s going to work.” He said two-thirds of his customers reduce their annual electricity bills to zero after installing solar panels.
In your portfolio: Lower oil prices have pounded the shares of oil services and exploration companies. Less badly hurt have been big integrated oil companies, like Exxon and Chevron. Oil refiners have actually benefitted from lower oil, because it cuts their costs.
Have oil prices and oil stocks bottomed? Hard to say. But in making the decision to invest in selected energy companies, or buying a green car, or installing solar panels, keep this in mind: We consume energy every second of every day. Even when you are sleeping, your refrigerator, furnace, clocks and cell phones are using energy.
For every American, there are a dozen people in emerging economies like China, India and Brazil who aspire to the middle-class lifestyles we enjoy. As they achieve that goal, they’ll be using more and more energy. Long-term, I doubt oil prices will stay down.
– Mark Rosenberg is a financial adviser with Financial West Group in Scotts Valley, a member of FINRA and SIPC. He can be reached at 831-439-9910 or mr********@fw*.com.