Crude oil has seen some extreme volatility in 2020, as prices plummeted below zero in April for the first time in history, and subsequently screamed back to trade above $40 a barrel within 2 months. Amid all the chaos, which was exacerbated by the coronavirus pandemic, seven of the largest oil companies in the world have written down a collective $87 billion from the value of their oil and gas assets over the past nine months, according to an analysis by climate finance think-tank Carbon Tracker quoted by the Guardian.
While WTI crude oil is currently trading down less than half a percent Friday, at roughly $42 a barrel, the energy sector stocks have been trading mixed to higher along with the broader market for some time, with Chevron and other big oil companies rallying back from their pandemic lows in March. However, over the past three months alone, Chevron, Shell, BP, Total, Repsol, Eni, and Equinor wrote down a total of $55 billion off the value of their assets, the analysis showed.
The bulk of the losses were posted for the second quarter when global oil demand crashed by 20 percent due to the lockdowns in the pandemic, taking crude to historic negative low prices. Aside from Exxon, all five Big Oil recalibrated the value of their oil and gas assets in Q2 as a result of the crash in oil prices and the anticipation of lower demand into 2021.
Total booked $8.1 billion impairments, including $7 billion in Canada’s oil sands, while slashing its interim price projections.
“Total has now recognised that some of its oil and gas assets cannot be produced as the world decarbonises, a belated but welcome development for those worried about risks to both the environment and their investments,” Andrew Grant, Carbon Tracker’s Head of Oil, Gas and Mining, said, commenting on Total’s write down.
Chevron also booked $5 billion of impairments, including $1.8 billion, mostly associated with lower adjustments to its commodity price outlook. However, the company also reported its worst quarterly results in three decades.
Finally, BP also booked impairments, slashed its dividend in half, and pledged to curtail its oil and gas production by 40 percent by 2030 as part of its strategy to reinvent itself from an International Oil Company (IOC) to an Integrated Energy Company (IEC).
“BP has radically changed the game. In the arms race of emissions announcements, most oil and gas peers have conveniently ignored the global need to produce and use less oil and gas – BP’s production cut of 40% by 2030 makes them unquestionably the industry leader,” Carbon Tracker’s Grant said of BP’s announcement:
For investors looking for continued higher oil prices, the United States Oil Fund (USO) or the ProShares Ultra Bloomberg Crude Oil (UCO) are two funds to consider. Meanwhile, for oil bears, the ProShares UltraShort Bloomberg Crude Oil (SCO) allows investors to short oil using ETFs.
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