Ukraine crisis challenges oil industry caution at high prices

Business

As commodity prices soar, the Ukraine crisis has prompted demands from petroleum lobbies for a reboot of US energy policy to promote domestic oil and gas production.

However, recent history suggests Wall Street may be an even bigger barrier than Washington to increased exploration and production.

As oil prices have risen over the last year – including Thursday’s brief surge above $100 a barrel – companies ranging from giants like Chevron to mid-sized players such as Devon Energy have chosen to only lift capital investment modestly.

That approach has reflected the clear preference within the investment community for producers to steer extra cash to debt-reduction and shareholder givebacks, while also ramping up low-carbon investment initiatives.

Companies have also been cautious in light of the ongoing Covid-19 pandemic and uncertainty over the recovery in energy demand.

Analyst at Third Bridge Peter McNally predicted companies would not rush to shift strategies over the latest spike in commodity prices.

“Everyone has been telling these companies not to drill so much, whether it’s the shareholders, (socially minded) investors or President (Joe) Biden,” said McNally.

“The industry has twice been at price points like this over the last year and it hasn’t ended well.”

 

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