Future of Big Oil

Big oil companies like Chevron, Exxon, BP, Shell, and Marathon are reporting some of their worst results ever and the future of big oil is very murky right now.  Most of these companies are preparing for a long downturn as the Covid-19 pandemic looks like it will continue to reduce global demand for fossil fuels.  This blog takes a look at some of the most recent news concerning the future of big oil and figures out what we can do about its position in our portfolio.

This Wall Street Journal article highlights the major losses in big oil: https://www.wsj.com/articles/chevron-swung-to-second-quarter-loss-as-oil-demand-slumped-11596195007

While this article talks about how Marathon is permanently idling 2 refineries in the US: https://finance.yahoo.com/news/marathon-petroleum-says-won-t-234632528.html

The fact is with Covid-19, the world has changed drastically.  We all know that airplane travel has been cut dramatically so jet fuel is a fraction of what it used to be.  For several months, everybody was locked up in their houses, causing gasoline usage and demand to plummet.  Granted this has caused a rise in “stay-at-home” stocks but the flipside is that big oil has been crushed.  Speaking from experience, an oil refinery is an incredibly expensive process with high capital requirements.  Unfortunately, the ability to turn the “faucet” on and off with respect to gasoline, jet fuel, diesel, etc. is just not possible.  Simplistically, an oil refinery is just a massive plant that boils oil.  Each grade of fuel has a different boiling point, so while you can do some small amount of tweaking to get more of one type of fuel, you can only do so much.

What this means for us is that we need to adjust what strategies we use to trade and profit from big oil in our portfolio.  Dividends from big oil has historically been very good but we will have to see how many of these companies are able to maintain their dividend.  However, all is not lost.  We can still profit with low risk but low profit trades with big oil.  This allows us to ride out this downturn, perhaps add to our positions, but also prepare for improvements in the future of big oil when it occurs.  While electric cars have a big future, the fact is that our reliance on fossil fuels won’t be disappearing anytime soon.  If you want to learn more about our low risk, low reward strategies, set up a FREE consultation by clicking here.


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