It was Andrew Swiger, the chief financial officer at Exxon Mobil Corp., who summarized the attitude of the whole industry after Big Oil ended reporting another dismal set of quarterly earnings: “Prices will have to rise.”
After months of low oil and gas prices driven by weak demand, the world’s largest international oil companies have largely exhausted their financial defenses, leaving little room to maneuver if they’re dealt further blows. Exxon Mobil Corp., Chevron Corp., Royal Dutch Shell Plc, Total SE and BP Plc have already reduced 2021 spending probably to as much as they can.
With the exception of perhaps Chevron and Total, which entered the downturn with the strongest balance sheets, leverage is approaching uncomfortable levels. Put together, Big Oil is now completely at the mercy of a worldwide rout in fuel demand that, absent a Covid-19 vaccine, shows no signs of abating, as well as OPEC+ leaders Saudi Arabia and Russia.
“I will say that a lot of the performance of the company today, but also in the future, will depend on the macro environment that we will be enjoying or suffering as the case may be,” said Ben van Beurden, chief executive officer of Shell.
Brent crude closed this week below $38 a barrel, bringing the year’s decline to 43%. At such levels, the industry is underinvesting in supply to such an extent that shortages are inevitable in the future, which means higher prices, Exxon’s Swiger argued. But a price recovery relies on two other things: higher demand and OPEC+ holding the line on production curbs, underpinned by the often uncomfortable alliance between Russia and Saudi Arabia.
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