Oil Prices Are on the Rise and Business Is Good For Western Energy Companies

Go West, Energy Investor

With crude oil prices at their highest levels in years, investors are coming back to Western oil companies. ExxonMobil (XOM) posted $23 billion in profits in 2021, matching levels not seen since 2014. Chevron (CVX) similarly just posted its highest quarterly profit since 2014, while European oil giants Shell (SHEL) and BP (BP) are anticipating upbeat earnings this week.

Both Chevron and ExxonMobil predict the energy business will perform well over the next few years. Specifically, they point to surging demand for oil and gas after a record-level dropoff in consumption during the early part of the pandemic. Many Western oil producers have slowed production as well, meaning prices will continue to rise as supply is further constrained.

Shifting Energy Strategies

Analysts are praising the restraint of US oil producers in particular as commodity prices rise and gasoline consumption picks up. Many companies are pledging to remain wary of trying to grow too fast. They also vow to pay out higher dividends to shareholders.

For example, ExxonMobil announced plans to buy back up to $10 billion in shares over the next two years, with analysts predicting the company will raise its dividend by the end of 2022. After Chevron reported its most profitable year ever, the company increased its dividend by 6% and announced similar stock buyback plans. Industry observers call this a major shift from the past when energy companies focused on purchasing additional drilling equipment and building up reserves.

Paying More at the Pump

While rising prices and the slowed-down production strategy could turn out well for investors, it’s not ideal for consumers. Gasoline currently costs around $3.32 per gallon on average — its highest level since 2014. Some oil executives predict US oil prices could hit $100 per barrel this year, up from the current $88 price point.

Other factors could push prices even higher. As the world’s post-pandemic economic recovery continues, demand will increase and some depressed sectors like jet fuel could start to bounce back. All the while, Western oil producers aren’t in a rush to boost supply. It’s an equation that analysts say benefits energy companies, but filling up your gas tank might prove painful this summer.

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