The world’s oil and natural gas companies are drilling their way into financial and social hell.
Driving the news: The industry’s stocks are in the toilet, and climate change is fast becoming a mainstream investor worry. These problems overlap and neither is going away soon — if ever.
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. Whether they love or hate them, 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.
“That’s absolutely representative of what a lot of people are thinking in terms of investing,” said Paul Sankey, a veteran oil analyst with the 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.”
The other side: Cramer’s comments hit a nerve. Chevron CEO Mike Wirth went on CNBC last Friday to push back and 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.
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 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 worries are among the factors keeping them there, Sankey said.