Oil Prices: Implications for Global Economic Stability

Current Trends in Oil Prices

Oil prices have remained firm, with Brent crude between $60 and $80 a barrel, generating substantial surplus cash for major players like ExxonMobil. Despite recent fluctuations, prices have stayed relatively stable, aligning with pre-COVID 10-year averages, indicating a balanced market.

"Our overall market conditions were softer in the second quarter. Oil prices remained firm. As a reminder, at Brent between $60 and $80 a barrel real and 10-year average refinery and chemical margins, we expect to generate between $80 billion and $140 billion in cumulative surplus cash from 2024 to 2027." --- (XOM, earning call, 2024/Q2)

"The chart above shows the trend in benchmark prices for Brent crude oil, West Texas Intermediate (WTI) crude oil, and U.S. Henry Hub natural gas." --- (CVX, sec filing, 2024/Q1)

"Between now and then, we have the potential to generate $140,000,000,000 in surplus cash at today's oil prices." --- (XOM, event transcript, 2024/05/29)

"I’m just wondering if you’ve seen any change in prices given the very recent fall in oil prices." --- (CVX, earning call, 2024/02/28)

"ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview In the first quarter of 2024 the price of crude oil remained flat relative to fourth quarter 2023 and near the middle of the pre-COVID 10-year range (2010-2019), as markets remained balanced." --- (XOM, sec filing, 2024/Q1)

Supply and Demand Dynamics

Strong demand and operational challenges are tightening the oil supply-demand balance, while long-term demand for natural gas and liquids persists. Efforts to reduce emissions focus heavily on supply reduction, complicating the task of meeting rising demand. Energy demand models, though simplified, aim to capture these dynamics.

"The solutions to emissions reductions have been too focused on reducing supply." --- (XOM, event transcript, 2024/05/29)

"And what that does is it creates a tighter supply-demand balance, particularly as demand continues to be strong and you need to have strong operations out of that entire system, or you need to bring in supplies from somewhere else if you've got planned or unplanned issues that the system is dealing with." --- (CVX, earning call, 2024/Q1)

"We also see long-term demand for natural gas, and so I think as we look at both of those, both the liquids and the gas side of the equation, we see a long-term future there and an opportunity for this company to participate if we have advantaged projects that position us on a low cost of supply, and so that's how we think about that." --- (XOM, earning call, 2024/Q1)

"Lowering greenhouse gas emissions while meeting increasing demand is no easy task." --- (CVX, Twitter, 2024/05/08)

"Energy demand models are forward-looking by nature and aim to replicate system dynamics of the global energy system, requiring simplifications." --- (XOM, sec filing, 2024/Q1)

Major Oil Companies' Responses

Chevron and ExxonMobil are adapting to oil price changes by modifying capital spending, diversifying investments, and maintaining financial flexibility. Chevron focuses on growing its oil and gas business while investing in lower carbon technologies. ExxonMobil emphasizes investor feedback, capital reinvestment, and maintaining a resilient industry.

"The company’s oil and gas business may increase or decrease depending upon regulatory or market forces, among other factors." --- (CVX, sec filing, 2024/Q2)

"On the contrary, Mr. Sheffield focused on legitimate topics such as investor feedback on independent oil and gas company growth and capital reinvestment frameworks; unfair foreign practices that threatened to undermine U.S. energy security; and, through dialogue with government officials, the need to sustain a resilient, competitive and economically vibrant oil and gas industry in the United States." --- (XOM, press release, 2024/05/02)

"During extended periods of low prices for crude oil and natural gas and narrow margins for refined products and commodity chemicals, the company has the flexibility to modify capital spending plans, discontinue or curtail the stock repurchase program, sell assets, and increase borrowings to continue paying the common stock dividend. The company remains committed to retaining high-quality debt ratings." --- (CVX, sec filing, 2024/Q2)

"You have quite a high oil weighting in the current sales mix. Are you looking to diversify over time or would you like to maintain that kind of 80% to 90% oil link exposure in your contract base over time? Thank you. Operator: The next question is from Josh Silverstein of UBS." --- (XOM, earning call, 2024/Q1)

"We aim to grow our oil and gas business, lower the carbon intensity of our operations and grow lower carbon businesses in renewable fuels, carbon capture and offsets, hydrogen and other emerging technologies." --- (CVX, press release, 2024/04/04)

Sectoral and Economic Impacts

Airlines and automotive sectors are significantly impacted by oil prices, affecting costs, travel volumes, and economic outlooks. Companies like American Airlines, Delta, General Motors, and Ford highlight dependencies on fuel prices and economic conditions, while Boeing monitors global trade influenced by geopolitical and economic developments.

"Other Costs We remain committed to actively managing our cost structure, which we believe is necessary in an industry whose economic prospects are heavily dependent upon two variables we cannot control: general economic conditions and the price of fuel." --- (AAL, sec filing, 2024/Q1)

"Additional Considerations Global Trade We continually monitor the global trade environment in response to geopolitical economic developments, as well as changes in tariffs, trade agreements, or sanctions that may impact the Company." --- (BA, sec filing, 2024/Q2)

"Our outlook is dependent on the resiliency of the U.S. economy, continuing improvement of supply chain availability, EV-related cost reduction and overall economic conditions." --- (GM, sec filing, 2024/Q1)

"Recent corporate survey results indicate that 90 percent of companies expect their travel volumes to increase or stay the same in the June quarter and beyond.Domestic environment improved with robust demand: Domestic unit revenues were a March quarter record, growing 3 percent year-over-year with record domestic load factors." --- (DAL, press release, 2024/04/10)

"We expect to have periods when we will be above or below this amount due to: (i) future cash flow expectations, such as for investments in future opportunities, capital investments, debt maturities, pension contributions, or restructuring requirements, (ii) short-term timing differences, and (iii) changes in the global economic or operating environment." --- (F, sec filing, 2024/Q1)

Technological Advancements in Oil Extraction

Technological advancements in oil extraction are enhancing operational efficiency, reducing costs, and promoting sustainable exploration. Companies like SLB and HAL are leveraging digitalization, fit-for-basin technology, and improved drilling speed and reliability to drive productivity and efficiency in the sector.

"The initiative represents a significant advancement in digitalizing the drilling operations of Pakistan's energy sector to enhance operational efficiency, reduce costs, and promote sustainable oil and gas exploration in the country. Digital Enablement" --- (SLB, press release, 2024/04/19)

"We deployed advancements that improved drilling speed and reliability and set several [general] (ph) records during the quarter." --- (HAL, earning call, 2024/Q2)

"And it's important that we focus not only on productivity, efficiency and reliability and drilling and completions, but also in all aspects of operations." --- (CVX, earning call, 2024/Q1)

"This is an optimal environment for our business, and we are seizing each of these opportunity.In the Middle East, in addition to the exposure to the oil capacity expansion program across the region, we continue to benefit from the acceleration and scale of investments in gas development, both conventional and unconventional, leveraging our fit-for-basin technology and differentiated integration capability.Offshore, we see the benefits of our OneSubsea JV as highlighted by the number" --- (SLB, earning call, 2024/Q2)

"We've got a good position in there, but I think with even more opportunity to grow, particularly with drilling technology that continues to advance." --- (HAL, earning call, 2024/Q1)