The OPEC meeting, over the weekend, came and went with little issue. Oil had traded a little weakly into the meeting, suggesting that at least some thought it plausible that OPEC would do something unexpected, however, they didn’t.
As a quick recap, why are energy prices (everything from oil to natural gas to coal) high?
Well, over the past decade, there’s been:
- minimal capex (ESG shunning, pressure on boards to divest and decrease assets & production, the rise of lower cost climate friendly renewables)
- reserve depletions (fields decline, and there are insufficient replacements and almost no greenfield developments)
- geopolitics (Russia, OPEC)
- demand surge (COVID-reopening, travel, cars and cold winters
The capex graphs are truly striking, from over to underinvested in the space of 10 years (I’ve not included the major’s names, but BP, Total, Chevron, all the Australian LNG players are there).
In our view, there remains a large and compelling performance and price differential between listed international players, and domestic, and more broadly, we continue to view the entire sector as cheap.
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