Oil Is The New Oil

Oil Is The New Oil

almost 5 years ago3 mins

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The price of oil has risen 30% this year – and it might have been expected to rise further this week, given threats to Saudi Arabian production. Yet greater US supply than expected ended up giving oil its worst week of 2019. So what’s going on?

🕰️ Recap

  • After hitting a four-year high, the price of a barrel of oil fell precipitously late last year

  • In April, Chevron made a bid to acquire Anadarko Petroleum, increasing its exposure to the liquefied natural gas (LNG) market

  • Oil’s price rose again in April, fueled by concerns over restrictions to supply from Iran

  • But that didn’t much help major oil companies’ first-quarter earnings, some of which slipped below expectations

  • This week, Saudi Aramco got further into the LNG game, signing a deal with America’s Sempra Energy

🔗 Connecting the dots

Oil makes the world go round. Its long-standing significance is perhaps exemplified by commentators’ penchant for comparing it to the latest hot commodity: you’ll have heard someone describe data as “the new oil”, for example. Typically, demand for oil is representative of the outlook for global economic growth: with greater activity, more energy will be needed to power factories and transport products to where they’re ultimately sold. And the ability of oil-producing nations to adjust supply in response to rising or falling demand determines how much investors are willing to pay for a barrel of black gold.

Which makes 2019 so far all the odder. Future demand for oil appears to have waned, with economic growth projections being cut several times already and the US-China-everyone else trade war further moderating matters. As you might expect, OPEC – a group of major oil-producing countries which controls a large chunk of the world’s oil supply – in December agreed to lower production to stop its price from falling too far. But the US is now the world’s biggest oil producer – and it doesn’t appear to be interested in slowing down production anytime soon.

The world as a whole is increasingly moving away from environmentally damaging fossil fuels and toward cleaner renewable energy sources. Natural gas may provide a happy middle ground for several oil firms: it burns cleaner than other fossil fuels without threatening the energy status quo too much. And that’s driven a lot of investment in the sector, leading to some oil companies fighting over LNG investments.

🥡 Takeaways

More than $30 trillion is expected to fall under the control of US millennials in the coming years – and they’re likely to encourage “ethical investing” to become a larger part of investment portfolios. That’s already being reflected in consumer choices, from higher sales at animal cruelty-free makeup brands to the rise of veganism shooting successful new firms like Beyond Meat into the stratosphere. With Norway’s influential (and enormous) investment fund already cutting its oil and gas investments, other investors may soon follow suit and ditch oil firms which don’t clean up their acts.

According to analysts at investment banks including Goldman Sachs and Morgan Stanley, oil’s price may yet rise further this year. They expect recent US sanctions on oil exports from Iran and Venezuela to offset any rise in American production – and that, combined with OPEC’s lowered production goals, should lead to demand for oil once again outstripping its immediate supply.

🎯 Also on our radar

This week, the New York Stock Exchange announced plans to lower the fees it charges companies with little to no revenue to speak of, hoping to encourage more such companies to choose its platform when they “go public” over rival Nasdaq. Stock exchanges make money from traders buying and selling shares listed thereon, so one motivation might be to attract a greater number of biotech companies. These aim to make blockbuster drugs – and while they have no income until (and unless) they’re successful, they might appeal to impact-focused investors currently coming of age.

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