In March of 2022, just 2 years after oil prices reached their lowest ever prices due to the pandemic, oil prices soared to the highest price since 2008 – something which was a result of the Russia – Ukraine war.
What is the current state of the oil market?
Oil has been a subject of speculation for some time, as the valuable resource depletes at an ever-increasing rate as demand increases alongside population growth and increasing demand for machinery and infrastructure. The panic that was caused by this sudden cut from the resource highlights the unreadiness of our society to a life where oil may not be so available. In 2017, at its peak, Russia exported nearly 9,000,000 barrels every day to countries all around the world to be used as fuels, plastics, insulation, and clothing to name a few. This emphasises the role crude oil plays at being the building block for society. The oil industry is a revenue heavy and lucrative trade due to the near constant and relatively consistent demand for crude oil’s derivatives with the largest 5 oil companies in the world collecting over $2.3 trillion in 2022 alone. Further to this, several oil companies are beginning to appear more and more attractive to investors, with Exxon Mobil (currently the 4th largest oil company) boasting an 85.6% return on investments from January – December 2022 (if held over the entire course of the year). However, to the average consumer, 2022 has not been a year that has been a cause for celebration.
In 2022 alone, the cost-of-living crisis has seen a 129% increase in gas prices, and a 65% increase in electricity prices, with a 2.6% average fall in real wages[i]. It is true that the war in Ukraine isn’t the only contributor to the rising oil prices, as the world continues to recover from the pandemic and increasing concerns about the amount of oil left in stores across the world arise, but since Russia is one of the major exporters, a sudden cut off from them has mostly led to these higher prices and the panic in the market.
What is “Big Oil” doing towards the energy transition?
Professionals around the world, such as Gilbert Masters, Stanford Professor of Civil and Environmental Engineering, estimate that there is around 30 more years until the world’s oil supply runs out. This is a cause for worry for all as dwindling supplies could spell even higher prices. It is mostly up to oil companies and governments to innovate and regulate to most efficiently distribute oil. Oil companies are some of the most active investors in clean energy and technologies, and research firm Woods Mackenzie have estimated that around $9 billion had been invested into the clean energy industry between 2016-2020, showing that oil companies are willing to bet on the success of the clean energy industry and the future of the oil industry. Some “Big Oil” firms such as BP, Shell and Total have made bold statements pledging that the investments are part of a broader strategy to be net-zero emission companies by 2050.
In addition, the UK government together with energy firms have already made large investments in renewables such as wind energy, with the UK having over 11,000 wind turbines (the majority of which being offshore). A government report states that the UK is well-placed to deploy at a significant scale and to produce 20-40 GW a year of power by 2030. Companies like Siemens are working with Governments to revolutionise and innovate the clean energy industry, which does raise the question of what will happen to oil and gas companies. Saudi Aramco is a state-owned company, and the Public Investment Fund (one of the richest sovereign wealth funds in the world) of the Saudi Arabian government has shares in big companies like Boeing, Facebook, Disney, and Citigroup to name but just a few. This shows that despite on the surface, the future of oil companies looks shaky and uncertain, many have done thorough and careful risk management to minimise costs and to keep the economy flowing. Despite this, many energy companies will collapse, as some already have as a result of the high cost of crude oil in 2022, but only time will tell how the companies will stay afloat with ever-depleting oil supplies.
Footnotes:
[i] Real wages – the amount of pay a person can expect to receive after factoring in inflation.
Bibliography:
Crude oil price chart 2023 | Statista
New UK cost of living threat as oil rises to highest price in seven years | Oil | The Guardian
It's About Forty Years Until the Oil Runs Out
DUKES 2022 Chapter 5 (publishing.service.gov.uk)
Saudi Arabia buys $7.7 billion shares in world’s best known companies | Arab News
