Major oil companies are facing their most challenging financial year since the pandemic, with profits steadily declining as crude prices fall, the Financial Times reported.
This marks the third straight year of declining profits for oil giants such as ExxonMobil, Shell, and BP. The combined earnings of the five largest Western oil companies have plummeted by about $90 billion since 2022, when Russia's invasion of Ukraine caused temporary spikes in prices.
These once-reliable stocks have become increasingly risky long-term investments as the world embraces clean energy solutions. Oil prices recently dipped below $60 per barrel, and analysts predict prices could drop more than 20% from last year's average.
This financial reality is forcing oil companies to cut spending and reconsider their promises to shareholders. BP, for example, based its shareholder returns on an oil price of $71.50 per barrel, well above current market conditions. Each dollar below that threshold costs the company approximately $340 million in profits.
Meanwhile, clean energy companies continue showing stronger long-term growth potential. Despite normal market fluctuations, renewable energy investments offer better stability as global policies and consumer preferences increasingly favor sustainable options.
This shift won't just help the environment. It's creating new jobs, driving innovation, and building more resilient economies all over the world.
"Given how uncertain the environment is, investors are looking for some reassurance," Biraj Borkhataria, an analyst at RBC Capital Markets, told the Financial Times. This uncertainty has led to pointed questions about which companies will be the first to cut shareholder payouts.
According to Fraser McKay of energy consultancy Wood Mackenzie, "We now expect global upstream development spend to fall year on year for the first time since 2020," meaning this ongoing transition's industry-wide impact is bringing us toward a cleaner, more sustainable economy.
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