Oil and gas companies endured a near-death experience last year when the COVID-19 pandemic ravaged energy demand and prices. However, the ongoing strong rally in oil and gas prices have contributed to the more than 40% year-to-date increase of the MSCI World Energy index, which is on track for its best performance since at least 1998. Investors are betting again on cash-rich oil companies as they expect a quick rebound in the global energy demand to continue.
The International Energy Agency estimates the world’s oil consumption will return to pre-pandemic levels next year. Analysts surveyed by Reuters project US and European oil firms to see profits rise 1,300% to $68 billion and 720% to €43 billion ($50 billion), respectively, this year. That marks the most optimistic earning outlook in 16 years.
Despite the price booms, companies are reluctant to raise their upstream investments amid growing pressure from investors and customers who emphasise sustainability. The IEA even urged investors to channel their funding away from new fossil fuel developments to renewables to meet future energy demand and global climate targets. Morgan Stanley projects global oil and gas investment to come in at around $365 billion this year, compared to $475 billion in 2019 and $740 billion in 2014.
