We repeat some of the commentaries from yesterday's ESG piece as we do not believe this risk can be highlighted too much.
The oil-focused activists are not thinking through their actions beyond the companies that they are attacking, whether in the courtroom or as shareholders. As we have pointed out in recent research, there is an expectation that oil demand will return at least to 2019 highs before any sort of renewable power replacement is notable and natural gas demand should continue to climb. More limited activity among the US and European oil producers – could drive exactly the conclusion in the highlighted headline – not because of the IEA forecast, but because oil supply falls too quickly as a consequence of activist pressure. OPEC+ could gain enough influence to push pricing higher, which might seem the right thing to do if they view the commodity as a declining annuity and feel they could use the cash to diversify their economies. Oil companies in the West would also benefit from higher cash flows to aggressively fund transition in Europe and perhaps to either give back to shareholders or to drive “take-private” initiatives in the US. As an oil major anywhere in the developed world today, what is the upside from spending on new E&P?
But the roll-on effects of all the activity two weeks ago continues, and while this linked headline suggests that “Big Oil” may be shrugging off the activism, it was interesting to see no rig count increase in the US last week, despite both oil and gas prices that should support increased activity, especially in those fields rich in NGLs as ethane propane prices are rising. Oil prices are back where they were in 2018 and 2019 and the rig count is half what it was at that time – Chart below – so it is unlikely that “Big Oil” is ignoring any of the external pressure around capital discipline and lowering fossil fuel exposure.
Source: Baker Hughes and C-MACC Analysis
