CHAPTER 12Energy
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The global energy sector includes companies that discover, produce, and deliver energy products made from fossil fuels to both retail and commercial customers. Since most individuals and businesses around the world require energy on an ongoing basis, one might assume that these products and services are nondiscretionary in nature. However, the energy sector is highly cyclical, primarily because much of the demand for oil comes from industrial companies, and these businesses are cyclical. Manufacturers, for example, expand production during periods of economic growth, thereby increasing their use of energy products. Conversely, as economic growth slows down, manufacturers produce fewer goods and consume less fuel. In the chemical industry, energy products are often a significant component of the goods being manufactured, including paint and plastic. Other industries that would consume less fuel in weak economic environments include transport and shipping companies as well as airlines. Even consumers cut back on their fuel consumption in a weak economy, driving less for vacations or making fewer trips to the shopping center. The result is a strong correlation between oil consumption and economic growth, whereby a 1% increase in global economic growth translates to an approximately 0.5% increase in oil consumption.
Energy derived from fossil fuels has been linked to climate change and has a history of creating environmental calamities, such ...