Daily Brief: The Energy Shortage Proves That Less Means More For Oil Giant Chevron

Daily Brief: The Energy Shortage Proves That Less Means More For Oil Giant Chevron

over 2 years ago3 mins

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Chevron’s third-quarter earnings packed a punch on Friday, as the ongoing shortages prove that less really does mean more for the oil tycoon.

What does this mean?

Energy prices are on the up and up, and Chevron has been more than happy to take its cut: the company sold an average barrel of oil and liquefied natural gas for 90% more in the US than the same time last year, and natural gas for over three times as much. That led Chevron to post its biggest quarterly profit since 2013. All the extra cash looks like it’ll get put to good use too, with the company revealing it’s thinking about buying back more of its own shares – on top of the $3 billion a year it already tucks away.

Chevron profit

Why should I care?

For markets: Oil giants are buying time.

Investors are keen on share buybacks in part because they reduce the number of shares on the market and push up the value of those remaining, and in part because they prove a company is optimistic about its own valuation. Energy companies, meanwhile, might be keen on buybacks because they’re a good way to convince investors to stick with them through their inevitably costly transitions to clean energy. Or at least, they were keen: the US government’s on the cusp of introducing new taxes on the tactic, which might suddenly make them a less appealing option.

The bigger picture: Ain’t nothin’ but a coal digger.

The oil and gas shortage has come at an inopportune time, coinciding with low wind and nuclear output. That’s forced some electricity producers to burn coal instead, which has pushed up both demand for and the price of the dusky rubble. That’s good news for coal mining companies Arch Resources, Peabody Energy, and Glencore: the latter alone is up 12% in the last three months versus the UK stock market’s 3%.

Glencore stock
Source: Google Finance

Keep reading for our next story...

The Eurozone Economy Grew By More Than Expected

Eurozone image

Fresh data out on Friday showed the eurozone economy had a stronger-than-expected third quarter, but it could be the calm before the storm.

What does this mean?

The European economy grew by a better-than-expected 2.2% last quarter versus the one before, showing the US – whose third-quarter growth disappointed last week – how it’s done. Two countries played a big part in the acceleration: France – where consumer spending was particularly strong – and Italy, whose industrial and services sectors came out on top.

Eurozone GDP

Still, the canary in this particular coal mine is starting to look a little woozy: the prices of goods and services in the eurozone were 4.1% higher in October than they were the same time last year. And if that inflation doesn’t let up, it’ll dent both consumer and business spending and, in turn, economic growth.

Eurozone inflation

Why should I care?

For you personally: Look forward, not back.

Thing is, economic growth data is so far in the rearview by the time it’s released that there’s not much investors can do with it. So you’d be better off watching what forward-looking stock market investors are up to for clues on where the economy’s headed next. And despite the highest European inflation data in 13 years, they still seem optimistic: they sent up Air France-KLM’s stock after its encouraging earnings update last week, and Mercedes-maker Daimler’s despite its weaker-than-expected results. That matters: they're huge companies that between them cover business and consumer spending.

For markets: Investors are forcing the issue.

Investors effectively started betting earlier last week that the European Central Bank (ECB) will raise eurozone interest rates in December next year, but the ECB was quick to say that’s not looking likely. Investors didn’t just not listen: they effectively started betting that the hike will come two months sooner. And the longer inflation stays high, the more likely the ECB is to cave to their predictions.



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