Oil Companies Invest in Green Energy
BP, Shell, and Total Go Green
Oil companies, including BP (BP), Royal Dutch Shell (RDSA) and Total (TOT) are getting into the renewable power industry, aiming to capitalize on increased demand from businesses. The oil companies are constructing wind and solar power farms and selling the electricity to large enterprises including Amazon (AMZN) and Microsoft (MSFT).
Corporations around the globe are seeking alternative energy sources. Many have pledged to slash their carbon emissions and have turned to wind and solar energy to meet these goals. Companies purchased a record amount of renewable power in 2020 and green energy purchases are on track to hit a new high this year.
Oil Giants Compete With Utilities Companies
Oil companies are entering a market long dominated by traditional power companies in an attempt to find new income streams and reduce their reliance on fossil fuel. Utilities companies have been providing green power to homes and businesses for some time, so they have some expertise which oil producers lack. However, oil companies believe they have other advantages.
Oil companies could be well positioned to provide green power to international companies thanks to their global reach and trading operations. Utilities companies tend to be more regional, providing power for specific states or countries. Oil companies may be able to source power from more areas and distribute it more widely. For example, BP already sources wind power from Scandinavia and solar power from Spain.
US Oil Companies Have a Different Approach
BP is focused on inking corporate power purchase agreements through Lightsource, its solar power joint venture. This year the unit signed power deals with Amazon, Verizon Communications (VZ), and Allianz (ALIZY). These deals provide BP with a stable source of cash though they do not yield the same returns as its oil and gas business. Meanwhile, Total recently reached a deal to supply renewable energy to the drug company, Merck (MRK) and Shell is providing green power for Amazon.
Major US oil companies are taking a different approach to the green energy market from their European counterparts. ExxonMobil (XOM) and Chevron (CVX) are not building solar and wind farms as a way to provide power to other companies, though they are sourcing renewable energy for their own use. As individual consumers and corporations become more conscious of the need for green power, it will be interesting to watch how companies respond to this increasing demand.
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Auto and Home Insurance Premiums Rise
Insurance Rates Climb as Pre-Pandemic Habits Return
As the economy recovers from the pandemic, the cost of insuring a car or home is increasing. As of the end of April, prices for auto and home insurance had increased 6.1% year-over-year. This was the most significant jump seen since 2018.
Last year, auto insurers lowered premiums. People were driving less because of the pandemic, and there were fewer accidents as a result. As people now return to some of their pre-pandemic habits, from commuting to road tripping, motor vehicle insurance premiums are rising. Analysts at insurance companies are monitoring trends to see whether more price increases are warranted.
Repair Costs Impact Prices
Most insurers are taking a wait-and-see approach to raising premiums further. Part of insurers’ calculations are tied to the cost of repairing or replacing an automobile or home. A number of factors impacting car and home prices are changing rapidly as the economy reopens.
As Progressive (PGR) considered whether to raise premiums further, the firm recently said it is monitoring the speed at which people return to physical offices, the prices of lumber, and shortages in the semiconductor industry. These factors could have a significant impact on the prices of cars or homes.
Challenges Loom for Insurers
Premium increases may not actually lift profits for insurers over the long term for a variety of reasons. For auto insurance, companies are dealing with the fact that as vehicles get more technologically advanced, they are becoming more expensive to repair and replace. On the home insurance side, the Atlantic storm season is expected to be worse than average this year, which could result in increased costs.
Insurance stocks had a strong run during the pandemic as traders sought safe-haven investments. While these stocks are still performing well in 2021, they could face headwinds in the coming months.
Refinancing Activity Stays Strong
Opportunities Still Abound
Mortgage refinancing surged during the COVID-19 pandemic. The number of homes refinanced last year reached a high not seen since 2003. That refinancing activity is expected to remain strong in 2021 as interest rates are still near record lows.
As of the end of May, the mortgage rate on a 30-year fixed mortgage was around 3%. It is higher than the 2.65% rate seen at the start of the year, but still low in a larger context. Analysts predict that interest rates will continue to inch higher as the economy recovers from the pandemic. However, refinancing activity is expected to remain strong and surpass $1.8 trillion in total.
What is Refinancing?
Refinancing is the process of paying off a mortgage loan with new financing, ideally at a lower rate or with some other, more favorable, set of terms. Homeowners often look to refinance when it could benefit them in some way, like with a lower monthly payment.
It may be possible to refinance your mortgage loan into better terms if your financial situation has improved since you took out the original loan—especially when paired with relatively low market rates.
Factors to Consider When Thinking About Refinancing
On average, homeowners were able to lower their mortgage rate by 1.25% or more in 2020. While refinancing might be a great idea for some homeowners, it might not be the best choice for others. Refinancing generally makes sense for homeowners who plan to remain in their homes for three or more years. It typically takes five years to recoup the costs of refinancing a mortgage.
As the economy rebounds, interest rates are expected to rise somewhat, but will likely remain relatively low. For some homeowners, it could be a good time to refinance in order to save on monthly mortgage payments.