What's going on?
Some of the world’s largest energy companies, including ExxonMobil, Chevron, and Total, reported on Friday that their profits are continuing to soar this year! But markets appeared to take the upbeat news with a pinch of salt…
What does this mean?
From 2014 to 2016, the Brent and WTI oil prices (closely watched price benchmarks for purchases of oil worldwide) suffered a major collapse amidst concerns about oversupply, falling from over $100 a barrel down to the $20s. After a partial recovery, they have fluctuated back and forth in the $40s and $50s through most of the last year but have been showing a sustained pick up recently. On Friday Brent passed above $60 for the first time in more than two years, thanks to factors like steadily increasing global demand and an agreed cap on supply by OPEC. That’s good news for energy companies with exposure to oil markets, although investors aren’t totally sold on the turnaround.
Why should I care?
For markets: Energy stocks rose on Friday but they could be too dependent on the oil price.
Friday’s earnings left the impression that energy companies’ profitability is based more on the oil price than on their strategy or management. In the third quarter, for example, Exxon added $860 million to its earnings thanks to the upswing in the oil price, while its profits related to innovation and expansion in production totaled only $20 million.
For you personally: Time to start bracing for higher energy bills…
Now that the prices of oil and natural gas are creeping up, it’s fairly certain that you’ll see more expensive heating bills or a bigger tab if you’re at the pump. That said, if you live in a developed economy, you’re likely to have a job as unemployment is fairly low and (hopefully) your wages will start increasing more – so you ought be able to compensate for the bulk of those increases!