Massive Oil Takes a Beating, however Its Buyers Are Using Excessive


Look at some of the most recent performance numbers.

Six of the top ten performers in the S&P 500 this year are energy companies, led by Marathon Oil, which rose 88 percent in 2021 alone. Companies in the energy sector of the S&P 500 outperformed any other broad segment of the market – up 37 percent in 2021, compared to about 11 percent for the equity market benchmark as a whole.

Driven by an increase in the price of oil, the stock returns of the major energy companies have been excellent despite the public chastisement. Here are some representative price increases in percent for 2021:

The price of crude oil in the US has soared to over $ 70 a barrel, its highest level in three years. Oil, in turn, has driven the price of regular gasoline at the pump well above $ 3 per gallon, which, according to the AAA, means an increase of almost 40 percent for the year.

The main short-term reason for rising prices in the energy sector is the classic one: a simple imbalance between supply and demand.

“Some of this just happens to the energy market when the economy grows after a recession,” said Ed Crooks, vice chairman of energy in America at research firm Wood Mackenzie.

Demand skyrocketed as the economy woke from its pandemic slumber.

At the same time, oil supplies were constrained by a decline in production during the recession, when people stopped driving and flying, and large oil companies lost billions of dollars and began to cut back. The offer has also been tightened by the reluctance of the group known as OPEC Plus – consisting of the organization of petroleum exporting countries and allied producers such as Russia. OPEC Plus has already announced that its members are starting to increase production somewhat, which could prevent prices from rising further.

But the longer-term supply-demand situation is much bleaker.

At some point, if you accept that the planet is warming – that is, if you accept the scientific judgment enshrined in the International Energy Agency report – the production of large amounts of carbon will have to cease. Public pressure on large oil companies could herald the decline in fossil fuel production. The possibility of restrictions on future supply puts a strain on the market and may have only a minor impact on prices, Crooks said. The oil markets have always been geopolitically involved, but they could become even more so in the next decade.

European-based companies such as Eni, Total and BP, followed by Shell, have adjusted to a future of alternative energy and reduced CO2 emissions faster than American companies such as Conoco Phillips, Chevron and Exxon, an independent one, according to a new study by Carbon Tracker Think tank.