Despite Strong Performance... Lowered Status of the Oil Giant

Oil Company Stocks Rose but
S&P 500 Weight Dropped from 16.2% in 2008 to 4.9%
"Oil Price to Reach $100 This Year" Forecast Also

[Asia Economy Reporter Kwon Haeyoung] Although global oil giants posted record profits last year due to high oil prices, investor enthusiasm was not as strong as before. Amid lukewarm investment interest in the oil industry, there are forecasts that oil prices could surpass $100 per barrel within the year due to sanctions on Russia and China's reopening of economic activities.

According to the Wall Street Journal (WSJ) on the 5th (local time), energy companies accounted for 4.9% of the S&P 500 index. This is an increase from the pandemic low of 2%, but still far below the 16.2% peak reached in the second quarter of 2008 when the energy sector was at its height. Although energy companies performed relatively well in the U.S. stock market, where most tech stocks struggled last year due to tightening policies, their stock performance was weaker than market expectations.

Among the top 20 companies with the highest returns in the S&P 500 last year, 15 were energy companies. In fact, ExxonMobil, Chevron, and Shell earned $132 billion (approximately 165 trillion KRW) last year and returned $78 billion (approximately 97 trillion KRW) to investors through share buybacks and dividends. Occidental Petroleum, purchased by investment guru Warren Buffett, saw its stock price surge by 119%. Although stock prices have risen compared to the 2008 peak, the media pointed out that their overall market share has decreased.

The WSJ analyzed, "The windfall in the oil industry did not excite Wall Street," adding, "Some investors who suffered losses during the oil boom triggered by debt in the 2010s left oil stocks fearing a recurrence of such events." Since the U.S. expanded shale oil production after 2010, many companies entered this market and increased investments. However, with the onset of the ultra-low oil price era in 2015, shale oil companies declared defaults, and investors suffered significant losses.

The growing global emphasis on carbon neutrality also affected these companies' stock prices. WSJ explained that pension funds and others sold some or all of their shares in oil and gas companies emitting greenhouse gases. Brad Demico, Director of Investments at Southern Methodist University, said, "Some investors may buy stocks if oil prices weaken due to a recession, but many appear to have stopped investing due to commitments to climate change," adding, "The capital base has been permanently reduced."

Despite this atmosphere, the outlook for the oil industry is relatively bright. Goldman Sachs expects that due to sanctions on Russia and China's demand recovery, oil prices could rise from the current $80 per barrel to $100 within the year as supply chain issues arise in 2024. In fact, oil prices fell to the $20 range per barrel immediately after the COVID-19 outbreak but soared to the $130 range following the Ukraine war.

Jeff Currie, a Goldman Sachs analyst, stated, "By May, the oil market will shift to a supply shortage relative to demand," adding, "This is expected to have a positive impact on oil prices." He also noted, "China has not fully rebounded yet, so it can maintain a balance with surpluses for now, but this will become problematic by the end of this year," and forecasted, "Serious issues could begin in 2024 when the spare production capacity of global oil companies runs out."