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Oil prices have increased dramatically in the past few months. Usually, that’s a recipe for drilling frenzy from US oil producers. But something strange happened or didn’t happen.
“US manufacturers are currently detained,” said Helima Croft, head of global commodities strategy at RBC Capital Markets. “They try to be disciplined.”
Oil companies are under great pressure to cut production. And the ringing of the house, that’s oil Investor That pushes companies to pump less oil
To understand why it helps to go back a little.
Over the past decade, the fracking revolution has fueled soaring US oil production. Big eyed investors pour huge sums of money into oil patches. Despite the plunge in oil prices in 2014, they bailed companies out of bankruptcy and waited for all of their investments to pay off.
“The people who come in and take their money for work … are on fire,” said Dan Pickering, chief investment officer of Pickering Energy Partners.
It’s a simple principle of supply and demand, and the more oil you sell, the less each barrel is worth. That’s why members of the OPEC Oil Alliance negotiate with each other to reduce global supply to limit volatility, increase prices and improve profitability for producers.
But US oil producers do not coordinate like that. They turned all the money on Wall Street into as much oil as they could – flooding the market and causing prices to fall. When they made more money they poured it back into drilling instead of taking it as a profit.
That leaves many companies overpaying, indebted, and struggling – and that’s it. before The epidemic has caused an acute crisis for the entire oil industry.
How bad is this for investors? Manas Satapathy, managing director of consulting firm Accenture Strategy, pointed to exchange-traded funds such as PSCE and FRAK, which track the performance of several U.S. oil producers.
If you invested in dollars in 2016, you will lose approximately 60% of your investment by the beginning of 2021.If you invest the same dollar in the S&P 500, you will get twice that amount.
Sure not Everyone Lost money on the oil boom Timed investors see the right returns, oil executives earn big salaries, and oil workers and the businesses serving them have had a very good year.
But many of the big banks, retirement funds and other investors raising oil capital don’t see the returns they expected.
“Many investors have left the bad taste in their mouths and won’t be coming back anytime soon,” Satapathy said.
Steven Senn / AP
Immigration is not the only latest payoff. There are also growing concerns about climate change and the long-term outlook for oil.
New York City Account Supervisor Scott Stringer works with the fund supervisory committee to manage one of America’s largest public pension funds.
The city recently pulled $ 4 billion from its fossil fuel investments, both in the name of fighting climate change. and Protect the profit of the fund
“The data is not lying,” Stringer said. “These are not investments that will grow the pension fund.”
The government, as well as Biden’s administration, are pushing for a more dramatic shift from fossil fuels. This global action on climate change raises many questions about the long-term outlook for the oil and gas sector as an investment.
How about today?
The energy sector is on the rise right now as oil prices soared amid signs of a global economic recovery.
But even investors attached to oil and gas pressured companies to regulate themselves.
And that makes a huge difference. Many oil producers need Wall Street money to provide new wells. The investor controls the wallet line. And now investors are not impressed with the number of barrels the company says they can drill.
“Investing for growth is not what investors want,” Pickering Energy Partners said. “Growth gives us more barrels, it gives us too many buckets, it gives us low prices, it gets us. Weak returns ”
Less oil, more cash on hand, in a nutshell is what oil financiers need. And in response, executives vowed they would take responsibility and focus on profits rather than oil.
This spring, CEOs who once boasted how much oil they can pump now are being protected by every new rig they use.
The change was not observed by analysts, investors or competitors.
“The ‘drill ball’ is gone forever,” Saudi Energy Minister Abdulaziz bin Salman said Thursday with a smile, OPEC + is reviewing supply and Bin Salman said the interests of Shareholders will drive US manufacturers in the same direction.
But will it really be forever?
Oil companies like to drill for oil. It’s what they do And as prices keep rising, they may struggle to stick to the strict goals they strive for.
That remains a concern for attached oil investors, according to Rebecca Fitz of the Boston Consulting Group’s Center for Energy Impact.
“The scary thing is that companies are starting to put all that money into growth,” she said. that Issue to watch in the next year ”