There's more oil and gas than ever — and the industry is tanking

Why it matters: People use products from oil and natural gas, which are heating up the Earth, and many own (perhaps unwittingly) stock in these companies. The financial and social standing of these companies will likely affect all.

The intrigue: CNBC’s Jim Cramer raised eyebrows by saying recently that he was "done" with fossil fuels and likened them to tobacco. "This has to do with new kinds of money managers, who frankly just want to appease younger people who believe you can’t ever make fossil fuels sustainable," he said.

• A few days later amid backlash, he doubled down in an op-ed.
• Sure, Cramer is known to be intentionally provocative and has been infamously wrong, but in any case, many Wall Street analysts tend to agree with him.

“That’s absolutely representative of what a lot of people are thinking in terms of investing,” said Paul Sankey, a well-known oil analyst in the sector for 30 years, now at the Japanese bank Mizuho Financial Group.

• When asked if climate change and potential action on it are affecting the sector’s stocks, Sankey replied: "It's unquestionable. But it is just very, very difficult to put numbers around it."
• Last month, Sankey and his colleagues published what the firm described as its first research note on oil and gas devoted solely to what investors call ESG (environmental, social and governance), a nebulous phrase capturing various factors including climate change.
• The note was titled, "The Greta Effect," in what is another sign of the wide-reaching influence of Greta Thunberg, the Swedish teenage climate activist.
• To be clear, a lot of the major investment firms still invest heavily in oil and gas despite pronouncements on ESG issues (coal is an increasingly different story).

The other side: Cramer's comments clearly hit a nerve. Chevron CEO Mike Wirth went on CNBC last Friday to push back on Cramer’s remarks and to say this latest downturn will eventually abate.

• Roughly two-thirds of oil and gas investors think so too, according to a recent survey by consultancy IHS Markit, citing an eventual rebalancing of supply and demand.
• "If tobacco use were ceased today, I think the world would be just fine," Wirth said. "If we ceased use of all hydrocarbon products today, the world would not be fine, and I think that’s the reality."

How it works: In the State of the Union address last week, President Trump showered praise on America's booming oil and natural gas, so it seems like it should be a great time to work in the sector. It’s not.

• Oil and gas companies have become victims of their own success by producing more fuel than the world is demanding.
• Layer on top of that the prospect that the world drastically reduces use of these products to address climate change, and the industry's got a deeply uncertain outlook over the coming decades.

• This isn't even factoring in the acute drop in oil and gas demand emanating from the spread of the coronavirus, which is a crisis unto itself.

By the numbers:

• Energy stocks have dropped from 15% of the S&P 500 in 1990 to just 5% last year.
• ExxonMobil, once considered one of the most reliably well-performing stocks of any kind, and the exchange-traded fund XOP, comprised of oil and gas stocks, have performed far worse than the overall S&P since 2014, when oil prices crashed due to oversupply.
• The stocks haven't recovered (and neither have oil prices). Check out the accompanying chart.
• Energy jobs, led by oil and gas, were the only sectors to lose jobs last year.

Sankey described a negative feedback loop for oil and gas companies where climate-change worries are an accomplice, not the main driver:

• Oil and gas stocks have performed poorly in the S&P due initially to oversupply, while others — especially those of tech companies — are doing really well.
• Funds that prioritize ESG factors tend to favor tech companies, instead of oil and gas, so those funds keep doing well.
• Markets are driven by momentum, so the worse oil and gas stocks do, the less momentum they have, and the worse they keep doing — thus the feedback loop.
• Global oversupply has been the initial driver pushing stocks down, but now climate change worries are among the factors keeping them there, Sankey said.

What I'm watching: How the disconnect shakes out between the reality on the ground — the fact that our global economy does heavily depend on oil and gas — and the reality on Wall Street, which is not showing much love to those fuels.