High oil prices will impact the transition to renewables

Predictions about responses to rising oil prices are often, shall we say, predictable. There is the school of thought that higher crude prices will force exploration and production companies to drill more to take advantage of those higher prices.

Additionally, soaring crude prices may fuel more discussion about renewable energy and clean technology, explaining why stocks and related exchange-traded funds, such as the Invesco WilderHill Clean Energy ETFs (PBW B-)may exhibit positive correlations with oil prices.

With this in mind, it is perhaps unsurprising that PBW, which tracks the WilderHill Clean Energy Index, is up nearly 11% in the past month. If oil prices continue to rise, the recent uptrend in PBW could be the start of a longer-term rebound.

“Higher and more volatile energy prices will be a catalyst for individual and global efforts to decarbonize energy networks, critical to meeting climate change goals. But energy prices alone will not be a tipping point that prompts society to adopt cleaner energy sources, experts say. Government intervention and widespread education are also essential,” reports Catherine Clifford for CNBC.

The $1.28 billion PBW holds 80 stocks, making it one of the broadest ranges in this fund category. Than portfolio depth positions PBW capitalize on multiple renewable trends, which is a potentially favorable trait as high oil prices tend to benefit more than one corner of the clean energy spectrum.

As consumers know all too well, soaring oil prices mean painfully high prices at the pump, which is a scenario playing out today. As a result, some experts believe more car buyers will consider electric vehicles. You’re here (NASDAQ:TSLA) is a member of the PBW lineup, but ETF Invesco’s electric vehicle exposure extends far beyond Elon Musk’s company to include lithium miners, charging station companies and other electric vehicle manufacturers. None of PBW’s holdings exceeds a weighting of 2.3%, indicating that single-stock risk is low in the fund.

Additionally, PBW is all the more relevant today as Russia’s war on Ukraine reminds investors that energy security is national security and that renewable energy is part of energy independence.

“In addition to their decarbonization benefits, clean energy investments are also becoming attractive as a way to protect the U.S. economy from fluctuations in energy prices due to geopolitical shifts,” according to CNBC.

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Steve R. Hansen