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Irina Slav

Irina Slav

Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.

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Are Investors Turning Away From Big Oil?

Argentina shale

Earlier this year, when Big Oil reported its results for the final quarter of 2017, analysts projected that investors would be happy, making the industry an attractive investment opportunity once again. Indeed, investors in the most frugal of Big Oil companies were happy and the stock reflected this. However, other Big Oil stocks have suffered and are likely to continue to suffer as investors change their priorities.

Bloomberg’s Kevin Crowley and Kelly Gilblom report in a recent story on the topic that Big Oil investors are demanding more than just regular dividends. They are demanding higher dividends and they are worrying about a number of things that could eventually make them ditch their oil stocks, weighing further on shares already pressured.

What are investors so worried about? Climate change policies, for one thing, and their undoubtedly serious impact on the fossil fuel industry. The growth of EV and renewable energy generation capacity adoption is another cause for concern. Finally, as a result of these two factors, investors are worried that long-term oil demand is unsustainable despite all assurances from the industry.

This combination of factors, according to analysts cited by the Bloomberg authors, explains why Big Oil stocks have not followed the upward curve of oil benchmarks. Investors, this discrepancy between oil prices and oil stocks suggests, do not care about heightened tensions in the Middle East, possible new sanctions against Iran, or the war in Syria. They don’t care about U.S. inventories falling back into their five-year average range and about Venezuela’s plummeting production that has been instrumental for OPEC’s exceptional quota compliance in the production cut deal. Related: Will Higher Oil Prices Boost The Global Economy?

What investors care about, it seems, is the long term. This should come as no surprise, really, since long-term planning is what distinguishes investors from the millions of day traders chasing the next deal. This distinction is valid for every industry, but in oil it has become particularly pronounced as the industry undergoes a seismic shift into renewables, pressured—you guessed it—by investors.

This shift in fact begs the question of why aren’t investors happy with their Big Oil holdings if the companies are making inroads into renewable energy. If the threat of renewable energy displacing oil is one of the reasons why investors are selling their oil stocks, then the fact that the issuers of these stocks are entering—or expanding into—renewables should offset this particular worry. Getting on the renewables bandwagon means thinking ahead to ensure the sustainability of the business, after all. Yet data from global equity indices suggests investors just don’t like Big Oil as much as they used to.

There are two reasons for this. One is that the shift to renewables is at a very early stage and investors need more evidence that Big is serious about renewables. The other reason has to do with reputation. Pension funds and investment banks are ditching their holdings in oil, gas, and coal because they don’t want to look like smokers at the non-smoking table of the new socially responsible world. Also, smoking is bad for you and those around you. It is this latter reason that will likely take the upper hand in the near to medium term, possibly changing the makeup of Big Oil significantly and further pressuring its value until the first results from the green shift become evident.

By Irina Slav for Oilprice.com

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  • Kr55 on April 25 2018 said:
    It's mainly about stability now. Many funds aren't buying oil for sure, but you don't need everyone and their dog to buy stocks for them to go up. You can make a stock price go up a buck off 1 trade or a million trades. In the end, you just need company fundamentals to improve and look stable. The stock price is supposed to reflect the value of the company if it was purchased or wanted to buy its shares back. That baseline will come back in time, as it becomes clear the oil market is stable in a reasonable range again where well run companies can survive. For now, many oil stocks are just a place where games are played with HFT's and big short positions because the instability of the market encourages it.
  • randy verret on April 26 2018 said:
    I'll tip my cap to all the environmental "activists" that have (seemingly) succeeded in getting the vast majority of non-inquisitive Americans to buy into their "Green Bilge" campaign. Renewables competing with oil? Really? How are you going to replace the equivalent of 18-20 million barrels/day of transportation fuels to power over 300 million motor vehicles, trucks, buses, trains & planes? Don't say "EV" because you will have several TRILLION dollars of investment for all the power lines & charging infrastructure along with generating plants to supply the ENORMOUS base load of electricity to support that transition. IF that were to occur, it'll take a LONG time to complete that transition.

    Reality Check: Let's look at some basic US energy facts. Fossil fuels supply 65% of our electric generating capability and 95% of our transportation fuels. There is a REASON fossil fuels are our dominant source of energy. We are NOT going to convert to 100% renewables...PERIOD. So, let's stop with all the drama & theater and start an informed debate about the REAL energy alternatives we face in the decades to come as we transition away from fossil fuels. If you support ENERGY POVERTY, just keep beating your "renewable drum." Instead of allowing a segment of the population to "foist" it's unrealistic agenda (Easy Button) on the energy domain, let's change the discussion from outright VILIFICATION of "Big Oil" and focus on alternatives that are practical, sustainable, clean & scalable. Lots of challenges our here in this arena. Not a job for the drama department...

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