- For the first time in over two decades, oil companies are poised for a record-breaking combined US$50 billion in profit in the second quarter, outpacing even the most resilient tech companies.
- Oil majors are wary that Washington’s accommodative stance towards extraction could very quickly turnaround once conditions improve.
The shift to wean the world off fossil fuels and decades of underinvestment in extraction has become the biggest turnaround story for some of the world’s biggest oil companies.
For the first time in over two decades, oil companies are poised for a record-breaking combined US$50 billion in profit in the second quarter, outpacing even the most resilient tech companies.
Soaring earnings at some of the most well-known oil giants are reflective of the high energy prices that have provided the fuel for inflation, piled pressure on consumers and raised the risk of recession, with some lawmakers calling for windfall taxes.
Nevertheless, the soaring profits at Exxon Mobil, Shell, Chevron, TotalEnergies and BP are likely to already have peaked, as a possible recession threatens to derail demand.
The supermajors are expected to make even more money than they did in 2008, when global oil prices hit almost US$150 a barrel because it’s not just crude that has soared, but natural gas as well as refining margins.
Ancillary sectors such as oil and gas services companies, including the likes of Halliburton, are natural beneficiaries from the boom in energy prices as well.
Many major markets have found themselves critically short on refining capacity, a result of shutdowns, investments stalled by the pandemic, and sanctions on Russia.
China has also limited petroleum exports, in an effort to bolster domestic supply, even as demand has waned thanks to repeated zero-Covid lockdowns.
It’s unlikely that these gains will be durable because the demand side of the equation is rapidly deteriorating, with soaring gasoline prices already undermining consumption.
The supermajors are well aware of the risks of overinvesting during a time of plenty and instead of doubling down on extraction and production capacity, are likely to engage in stock buybacks or paying down debt as interest rates increase, the first time the industry has been able to do so in years.
U.S. President Joe Biden has pleaded with U.S. oil majors to boost domestic production, but so far, those pleas have fallen on deaf ears.
Oil majors are wary that Washington’s accommodative stance towards extraction could very quickly turnaround once conditions improve.
And in an industry where investment in extractive capacity can take years to turn a profit, it’s unlikely that an oil major’s leadership will choose to squander gains from record returns on expansion, especially when the outlook is unclear.