Hot Features
Premium
Trade like a pro: Leverage real-time discussions and market-moving ideas to outperform.
The global economic recovery from the pandemic and the rise in geopolitical tensions have eventually sparked a perfect storm for energy markets. For households, this meant a surge in costs and expenses. For oil producers, on the other hand, it became a lifetime opportunity.
The five largest oil groups – TotalEnergies, ExxonMobil, Chevron, BP and Shell – had combined profits of over $150 billion in 2022, in comparison to $89 billion generated in 2021. Given the resilience of the U.S. and European economies, as well as the reopening of China and a cut in oil production by Russia, this year results will not disappoint either.
Goldman Sachs analyst Jeff Currie, for example, is predicting oil prices to rise to $100 a barrel by 2023. The fact that global oil demand rose 1.3 million bpd in December to a new record high, driven primarily by gains in Japan, Indonesia, and Korea, adds a certain optimism for the industry’s outlook. Now, the question arises, is it worth investing in oil stocks at this point? It depends.
Despite the high level of uncertainty, investment in the oil and gas industry is booming. S&P Global estimates that global spending in the sector totaled about $450 billion last year, up from $350 billion in 2020. Overall, it promises to be a good year for companies, assuming the economic environment remains stable and taxes do not rise.
It is also true that in the context of the ESG agenda, fossil fuels will eventually start losing market share to renewables. For that reason, it is crucial to analyze where the companies are planning to deploy extra earnings. Exxon Mobil Corporation, for example, pledged to spend $14.9 billion on dividends and another $14.9 billion on share buybacks.
British oil company BP, on the other hand, plans to increase investment in fossil fuel production by some 1 billion dollars this year. The company will also put the money into the development of low-carbon biofuels and hydrogen. It is also possible that some of the players will use part of the proceeds to reduce debt burdens.
