Are Oil Stocks Permanently Down?

February 26, 2020

Remember typewriters? Film in cameras? Xerox? AOL?

Exxon?

Market Watch via Institute for Energy Economics and Financial Analysis:

Even Wall Street firms are urging clients to dump energy stocks

While the S&P 500, the Dow Jones Industrial Average, and the Nasdaq Composite index hover near all-time highs, energy stocks have fallen on very hard times.

Exxon Mobil — the world’s most valuable public company as recently as 2012 — has seen its stock price plunge about 40% from its all-time high above $100 a share in June 2014, a loss of more than $180 billion in market capitalization. The Energy Select Sector SPDR ETF, the largest energy-sector ETF, is down by a similar amount from that date.

Meanwhile, the S&P has surged more than 70% over those 5 1/2 years, outperforming energy stocks by over 100 percentage points.

An oil glut in the wake of the shale oil boom, which has vaulted the U.S. to the top of global energy producers, has caused some of the sector’s stock-market troubles. That oversupply has persisted, despite production cuts, and has kept oil prices in the $50-a-barrel range. This year, fears of the coronavirus have triggered another sharp sell-off in energy shares.

Corporations and big investors, who have to live in the real world and not on Planet Wishful Thinking, are stepping up. Their big bottom-line fear: Much of the carbon-based energy reserves companies like Exxon Mobil — the biggest stock in Energy Select Sector SPDR ETF, followed by Chevron and ConocoPhillips — have spent decades accumulating will remain in the ground or under the sea. Those potential “stranded assets” — assets these companies may never use and may even have to write off — have prompted Wall Street firms to mark down energy stocks’ valuations and urge clients to dump the shares.

That’s why the five-year bear market in energy stocks may turn out to be as permanent as the secular decline in newspaper publishers or department stores.

Longer article, read the rest here.

Current acronym for sustainable investing is ESG (Environmental, social, Governmental investing) – according to Vanguard, ..”You may hear the term used interchangeably with “socially responsible investing (SRI)” and “sustainable investing.”

Financial Times: (paywall)

Think ESG is hot right now? You ain’t seen nothing yet For years, US investment managers have been talking about huge demand building for ESG funds — but until recently the flow of money into sustainable products had failed to live up to the hype.  Now, however, it appears the dam has burst. After a record-setting 2019, Deloitte is predicting that ESG funds will account for half of all professionally managed assets in the US within just five years. Yes, you read that correctly. Half.

CNBC:

“From now on, a company that can’t prove it regards the Earth as a stakeholder is liable to get a lower-price-to-earnings multiple, because serious investors now are going to pay up for sustainability,” Cramer said on “Mad Money.” “That’s a very big deal.”

Fink, in a letter to CEOs released earlier Monday, argued a sizable redistribution of capital will happen “sooner than most anticipate” as investors come to terms with the risks posed by climate change.

BlackRock, which is the world’s biggest money manager with almost $7 trillion in assets under management, will also put “sustainability at the center of our investment approach,” Fink wrote.

That will include launching new investment products that screen for fossil fuels, as well as departing investments in fossil fuel-oriented companies, such as thermal coal producers, he wrote.

Cramer said these types of actions from BlackRock could lead to some “high-profile proxy fights” but most importantly it changes the calculus among investors.

“If companies don’t take action, one of the largest asset managers in the world will pay less for their earnings. Like it or not, sustainability now matters to the stock market,” he said. “And if you haven’t factored it in yet, the train is leaving the station.”

8 Responses to “Are Oil Stocks Permanently Down?”

  1. rhymeswithgoalie Says:

    Spin, lady, spin. “It breaks even about $50/bbl.”

    That may sound low compared to prices six years ago, but the most active economies (hence higher oil consumers) are those making the faster transition away from oil.

    And, as we know, there doesn’t have to be much of a drop in demand to hammer the price.

    • J4Zonian Says:

      Thanks for that video.

      Because of government policies, EV market share in Norway is 64%! Sweden’s is 30%, Iceland, 25%; and France, Portugal, Netherlands, 10-11%. A few doubling times away from a takeover.
      https://cleantechnica.com/2020/02/05/norway-hits-64-4-ev-market-share-in-january-up-24-year-on-year/

      Besides purchase price being high for some people, which is easily fixed by said policies, resistance to EVs is mostly irrational at this point. Life cycle costs are lower than ICEVs; range is already more than enough for the vast majority of car users and could fairly easily be doubled and more, by providing enough fast chargers. Again, policy. Or something the moronic-spending mbillionaires could do if they cooperated, even without government.

  2. Brent Jensen-Schmidt Says:

    Equinor has just pulled out of the consortium to drill The Great OZ Bight. This is an economic decision and not due to ‘green groups’ pressure which is trumpeted everywhere. Result is the same.

    • J4Zonian Says:

      Corporations and governments always minimize the effect protests have on their actions; to admit otherwise would encourage activism, and that’s the last thing they want—to be forced to bow to the will of the people and to science. Any evidence for your claim?

      • Brent Jensen-Schmidt Says:

        Am quite familiar with the area though have not seen recent 3D seismic surveys. The area is Challenging, as in dangerous and expensive. The geology is a mess being on a trailing plate margin and it is effectively unproven green field. In short, $50 a barrel is not even close to cutting it. As this price is unlikely to increase ever it is a dead duck. IMEO.


  3. Teck Resources just pulled out of a massive multi billion dollar proposed oil-sands project in Alberta that was approaching final approval (not guaranteed). The money was instead spent on acquiring a renewable energy company instead.

  4. neilrieck Says:

    Despite what people want to believe, the biggest threat to coal came from oil. Likewise, the biggest threat to oil comes from the gases produced by fracking. But the fracking boom was financed with borrowed money so when OPEC decided to drop the price of oil, many fracking operators were barely able to service their debt. This continued until the recent stock market slide (which was associated with a black-swan event called CONV-19) pushed some fracking operations into bankruptcy. When this happens, common share holders get cleaned out while the original lenders (the banks in this instance) become the new share holders. At this point the fracking operation is free of debt and will continue punching oil in the gut. One more point: once fracking is right-sized, it will be able to competitively survive another OPEC price drop or future black swan event. This cannot be said for “very expensive” extraction (oil sands in Alberta Canada) or just more expensive extraction (shale in North Dakota). But all the above will be challenged when automobiles shift from petroleum motors to battery powered electrics. Most people today forget that combustion motors are an inefficient “previous century” technology. Engineers already know that automobiles employing electric motors require 5-times fewer parts than automobiles employing petroleum motors. Some day (but not anytime soon), automobiles employing electric motors could be 5-times less expensive. At this point I expect that the petroleum business will be done but that LNG will still be around.

    Up until this point I have only been talking about money and technology so let me get back to climate change. Everyone reading this already knows that methane is a more dangerous green house gas than CO2. What most people do not know is that the fracking process releases a lot of methane, and that methane releases exploded beginning ~ 2008 and continue to the present (that’s right: fracking has accelerated climate change). Folks, we might get rid of petroleum but we are just swapping one problem for another. We must leave fossil fuel energy in the ground if we wish to decelerate climate change.


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