Why the Rockefellers May Be Right in Ditching Energy Stocks

NEW YORK (TheStreet) -- The Rockefeller family, which made its fortune in oil business, announced over the weekend that its charity arm, the Rockefeller Brothers Fund, will divest of fossil fuel stocks, beginning with coal. Quoted in the Washington Post, President Stephen Heintz said the family was "making a moral case, but also, increasingly, an economic case."

Divestitures themselves haven't pressured the coal, oil and gas industry. But there are indications that a move out of fossil fuel stocks makes sense.

Since peaking three months ago all sorts of oil producers, from EOG (EOG) and Pioneer (PXD) to smaller players such as Sanchez (SN) , Chesapeake (CHK) and Rosetta (ROSE) have been following crude prices down. So are the big oil majors, like Exxon Mobil (XOM) and Chevron (CVX) , although not as much. Coal companies like Arch Coal (ACI) continue to circle the investment drain, down a further 44% so far this year, partly in response to increased regulatory pressure.

Most see this as a temporary decline that will recover soon. But if you're investing in domestic oil and gas producers you have cause for concern. 

Must Read: Warren Buffett's Top 10 Dividend Stocks

International tensions have seldom been more on the side of higher prices. Iraq, Russia, and Libya may all cut back production. Nigeria production might be hit by the Ebola virus. Saudis have also cut back production. Under those conditions, we would expect oil prices to go up, yet they continue to drop.

West Texas Intermediate, the U.S. oil standard, is down from over $105/barrel in June to under $93/barrel today. Traders who bet big on shale oil are losing money. 

The fact is that oil demand is not rising. The Energy Information Agency says U.S. demand is stuck at 19 million barrels/day. The International Energy Agency is cutting its demand estimates, to 93.8 million barrels/day next year. 

On top of that, the U.S. may have a lot more shale oil than previously thought. The Eagle Ford shale play, for instance, may be deeper and wider than previously estimated, with more producing depth. Adjoining plays like the East Texas Woodbine shale seem to extend back toward older plays, creating hybrid plays with names like Eaglebine. A lot of money is being sunk into exploiting these reserves expecting demand to increase. That investment is putting margins under pressure and causing drillers to emphasize lower cost drilling.

Certainly renewable shares have been no place to be lately, either. First Solar (FSLR) is up 1.28% over the last three months but former high-flyers like Sun Edison (SUNE) , SolarCity (SCTY) and SunPower (SPWR) are all down. 

At the same time, supplies of renewable energy keep going up. Russia is making progress on full cycle nuclear technologies that don't create hazardous waste. The U.S. grid currently has 16 gigawatts of solar capacity and a significant share of wind energy. Costs for wind and solar systems continue to fall, yields are slowly increasing.

With oil and gas supplies increasing, and alternatives to oil grabbing share, with costs for fossil fuels rising and those for renewables falling, it is possible the move out of fossil fuels, whatever its political motivations, may be the better bet. 

Must ReadCramer and Dicker: Why Are Oil Prices and Stocks Connected?

At the time of publication the author owned no shares in companies mentioned in this story.

Follow @danablankenhorn

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage

If you liked this article you might like

Occidental, RSP Permian Pumping More Shale Oil Than Expected, Goldman Says

Occidental, RSP Permian Pumping More Shale Oil Than Expected, Goldman Says

EOG Resources May Not Be Able to Resume Its Uptrend

EOG Resources May Not Be Able to Resume Its Uptrend

3 Game-Changing Areas Where Warren Buffett Should Spend Berkshire's Tax Windfall

3 Game-Changing Areas Where Warren Buffett Should Spend Berkshire's Tax Windfall

EOG Resources Is Extended; Exercise Caution

EOG Resources Is Extended; Exercise Caution

Learn From My Portfolio Mistakes: Cramer's 'Mad Money' Recap (Friday 12/29/17)

Learn From My Portfolio Mistakes: Cramer's 'Mad Money' Recap (Friday 12/29/17)