Cash in on a profitable end to the oil era

Cheap oil stocks could still make a lot of money and carve out a new future before oil demand peaks

Offshore wind turbines © Christopher Furlong/Getty Images
European oil majors are investing in offshore wind
(Image credit: © Christopher Furlong/Getty Images)

Everybody hates oil stocks. Income seekers are scared by the dividend cuts. Sustainable investors don’t like the pollution. Momentum traders aren’t interested in anything that’s not tech. And everybody else looks at the red ink in recent results and steers clear. So it’s understandable that most of the oil majors – BP, Chevron, ConocoPhillips, Eni, Equinor (formerly Statoil), ExxonMobil, Royal Dutch Shell and Total – are down 40%-60% this year.

With yields of 5% or more even after cuts, these firms look cheap if the oil price recovers once Covid-19 passes. Crude is $40 per barrel now, but was $60-$70 last year, at which point the majors are very profitable. The strongest argument against them is that oil is on its way out faster than expected. BP now forecasts that demand will peak around 2030 and could then drop rapidly. The world would still need some oil, but potential supply would far exceed demand. That would mean low prices, so low-cost sources (eg, Saudi Arabia) might drive out other producers.

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Cris Sholto Heaton

Cris Sholto Heaton is an investment analyst and writer who has been contributing to MoneyWeek since 2006 and was managing editor of the magazine between 2016 and 2018. He is especially interested in international investing, believing many investors still focus too much on their home markets and that it pays to take advantage of all the opportunities the world offers. He often writes about Asian equities, international income and global asset allocation.

Cris began his career in financial services consultancy at PwC and Lane Clark & Peacock, before an abrupt change of direction into oil, gas and energy at Petroleum Economist and Platts and subsequently into investment research and writing. In addition to his articles for MoneyWeek, he also works with a number of asset managers, consultancies and financial information providers.

He holds the Chartered Financial Analyst designation and the Investment Management Certificate, as well as degrees in finance and mathematics. He has also studied acting, film-making and photography, and strongly suspects that an awareness of what makes a compelling story is just as important for understanding markets as any amount of qualifications.