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As oil prices have seen a nearly unprecedented volatility this year, traders remain flummoxed about just how to assess the state of the energy market, and more specifically, how to assess investment opportunities and the growth potential of individual oil and gas companies during these uncertain times. Are we really approaching peak oil demand? If so, how will peak oil effect energy-related companies in the next decade?
First and foremost on the list of unknowns is the demand growth picture for oil—a metric that has an indirect but strong effect on energy companies. In the second quarter 2019, oil prices took a downward turn, with WTI falling to near $50—an important psychological mark for the oil market and oil- and gas-related stocks. By mid-June, Brent reached the ever-important $60 per barrel mark as analysts offered the market a bleak picture about the future oil demand growth.
The depressing oil demand growth picture painted by analysts in recent months is largely due to the trade disputes between the United States and China and the United States and Mexico—leading some to suggest that peak oil is indeed around the corner. And this reduction in demand growth projections, combined with rising crude oil inventories in the United States, has pushed oil benchmark prices ever lower.
The lower price environment caused by analysts’ projections of lower oil demand growth will have a profound effect on oil and gas companies around the globe, and it will surely change how the move forward amid these critical uncertainties.
And how does one evaluate an oil and gas company’s worth with the most critical piece of information missing? Which oil and gas companies will fare better? Which will fare the worst? What goes into such an evaluation? We’ve got you covered.
Assessing the Growth Potential of an Oil and Gas Company
A major shakeup among oil and gas companies has occurred in the last few years in this turbulent market. Sheer size is no longer enough. Bigger isn’t always better—not anymore. Some of the biggest oil majors have actually found themselves rated lower than some of their mid-tier peers that until recently found themselves of limited regional importance. Integrated companies that reached outside oil and gas to add a hint of renewables is a signal that a new era has begun. And what of those companies that have acquired a heavy US shale footprint? What about the oil and gas companies that have had to disentangle themselves from PDVSA or who have a presence in a country with civil unrest such as Libya or Nigeria? What about companies who are embarking on new oil and gas frontiers in rather unexplored countries? Related: Tanker Strikes Spell Doomsday Scenario For OPEC
Together with a move toward renewables, US tight oil production could be an insulating factor for oil and gas companies moving forward, and it will likely upset the natural order of how oil and gas companies are ranked. And as some of the biggest names in oil increase spending in this area, US tight oil production may become “less sensitive to price volatility in the coming years” BP’s chief economist said recently, further skewing the old way of how we look and individual companies and where they stand in the pecking order.
As the oil and gas landscape goes through these profound changes, It is now more important than ever to understand how the world's top oil companies are doing, what their strategies are, what their cash outlook is that will allow them to adapt to this new environment.
Find out how this affects everyone from Exxon and Shell, from CNPC to Rosneft, and from Oxy to Citgo. Get the nitty gritty on the 50 biggest oil and gas companies in the world in a 50-page report here.
By Julianne Geiger for Oilprice.com
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Julianne Geiger is a veteran editor, writer and researcher for Oilprice.com, and a member of the Creative Professionals Networking Group. More