- The industry is likely to grow in 2024 due to its strong financial position and high oil prices
Crude oil is one of the most sought-after commodities in the world. Its wide array of uses ranges from transportation fuels to the manufacturing of chemicals and pharmaceuticals. Oil is a dominant source of energy worldwide and oil companies supply billions of barrels of petroleum products daily to power transportation and industry.
Hence the oil industry is one of the most powerful branches in the world economy and changes in benchmark oil prices have great implications for many manufacturing sectors and consumers. The 10 biggest oil companies as measured by trailing 12-month (TTM) revenue. The biggest oil companies are based in the United States, Saudi Arabia, China, the UK and France. An oil company may produce or distribute a variety of petrochemical and petroleum products like gasoline, diesel, kerosene, synthetic rubbers, and jet fuel.
The global energy scenario continues to be shaped largely by four disruptors:
- Geopolitical factors
- Macroeconomic variables
- Evolving policies & regulations
- Emergence of new technologies
These disruptors can have a significant impact on demand and supply, and trade and investment within the crude oil and natural gas (O&G) industry. The addition of OPEC+ output cuts of 2.5 million barrels per day (mbpd) pushed Brent oil prices past US$90/bbl, while US Henry Hub natural gas prices rebounded to US$3.50/mmBtu in early November 2023. Despite these disruptions, global oil demand remains on track to grow by 2.3 mbpd in 2023 and cross the 100 mbpd mark for the first time in history.
The industry is expected to have a solid start in 2024 due to its strong financial position and high oil prices, barring further deterioration in the macroeconomic environment. This strength of the industry will likely enable it to finance both investments and dividends and thus support its disciplined capital programme and shareholder-focused strategy. The global upstream industry, for example, is projected to maintain its 2023 hydrocarbon investment level of about US$580 billion (an increase of 11% year over year) and generate over US$800 billion in free cash flows in 2024.
However, this continued financial strength of the industry is likely to raise expectations of investors, regulators, and other stakeholders, who may anticipate further progress in emissions reduction, augmented investments in low-carbon energies, and amplified returns for shareholders. These expectations may serve as a driving force, spurring companies to focus even further on both emission reduction and economic performance.
Oil company ranking
Saudi Aramco is one of the largest companies in the world across all industries and the largest global oil-producing company by revenue. It is the only company on this list not traded in the US Saudi Aramco is the world’s largest integrated oil and gas company and has facilities in targeted innovation hubs in the United States, Europe and Asia. However, its stock is not traded in the United States. It has a revenue of $590.3 billion with a net income is $156.5 billion. Its market cap is $1.8 trillion and 1-year trailing total return is -3.7%.
– The second largest company is China Petroleum & Chemical. It is a producer and distributor of a variety of petrochemical and petroleum products. The company’s products include gasoline, diesel, kerosene, synthetic rubbers and resins, jet fuel and chemical fertilisers, among other related offerings. Also known as Sinopec, China Petroleum & Chemical. Its annual revenue is $486.8 billion and net income is $10.5 billion. The market cap stands at $55.7 billion with a 1-year trailing total return of 18.6%.
– The third largest is again from China. PetroChina is the publicly listed unit of the state-owned China National Petroleum Corporation. PetroChina is the largest oil and gas producer and distributor in China, contributing approximately 50% and 60% of China’s domestic oil and gas production volume respectively. Its annual revenue is $486.4 billion whereas its net income is $20.9 billion with a market cap of $78.7 billion. The 1-year trailing total return stands at 12.5%.
– Exxon Mobil comes on the 4th number. It explores, produces, trades, transports, and sells oil and natural gas. An industry leader in profitability in the energy and chemical manufacturing sector, it operates facilities or markets products globally and explores oil and natural gas on six continents. ExxonMobil markets fuels, lubricants, and chemicals under four brands: Esso, Exxon, Mobil and ExxonMobil. It’s last year’s revenue was $386.8 billion with a net income was $51.9 billion. Its market cap was at $445 billion whereas 1-year trailing total return was at 85.6%. Exxon is listed on the New York Stock Exchange.
– Shell is an international energy company with locations in 70 countries involved in the exploration, production, refining, and marketing of oil and natural gas, and the manufacturing and marketing of chemicals. It comes on 5th. Last year it generated a revenue of $365.3 billion with a net income of $43.4 billion. Shell’s market cap was $201.8 billion and 1-year trailing total return was 37.47%. Like Exxon, Shell is also listed on the New York Stock Exchange.
Demand ahead
Interestingly, Chinese oil demand rose to another record high of 17.1 mb/d in September, underpinning global growth. China is set to account for 1.8 mb/d of the total 2.4 mb/d increase that lifts demand to 102 mb/d in 2023. Overall growth is expected to slow to 930 kb/d in 2024. In the OECD, economic headwinds are increasingly apparent, with this year’s slim demand gains giving way to a contraction in 2024. World oil output increased by 320 kb/d in October to 102 mb/d. Growth in the United States and Brazil is outperforming forecasts, helping to propel global supply higher by 1.7 mb/d to a record 101.8 mb/d in 2023. Non-OPEC+ will again drive overall growth in 2024, projected at 1.6 mb/d. There has been no material impact on oil supply flows from the war between Israel and Hamas that started in early October.
Russian oil exports eased by 70 kb/d in October, to 7.5 mb/d, as higher crude oil shipments failed to offset a decline in product flows. Estimated export revenues fell by $25 million to $18.34 billion as lower international oil prices more than offset a narrowing discount for Russian grades versus North Sea Dated. Russian crude and product prices, apart from gasoline and VGO, were above the G7 Price Cap.
Meanwhile, top oil exporters Saudi Arabia and Russia confirmed in early November they would continue with their additional voluntary output cuts until the end of the year. Those cuts look set to keep the oil market in a significant deficit through year-end, with the OPEC+ alliance pumping 900 kb/d below the demand for its crude. Global observed crude oil inventories fell by a massive 140 mb over the third quarter to a fresh low, according to the available data, as refineries boosted activity ahead of seasonal maintenance. With demand growth set to slow, the market could shift into surplus at the start of 2024. For now, with demand still exceeding available supplies heading into the Northern Hemisphere winter, market balances will remain vulnerable to heightened economic and geopolitical risks – and further volatility ahead.
The market rally that pushed benchmark oil prices towards triple digits in September reversed sharply in October, despite continued tight crude supplies and an intensifying conflict in the Middle East. In early November, ICE Brent futures plunged to a four-month low of around $80/bbl.
Exceeding supply
World oil supply growth is also exceeding expectations. Fears that the war between Israel and Hamas would escalate into a wider regional conflict, disrupting oil supply flows, have yet to materialise. Barring large unforeseen outages, world oil supply is firmly on an upward trajectory, with October output up 320 kb/d m-o-m. Record output from the United States, Brazil and Guyana underpin this year’s 1.7 mb/d increase in global oil supplies, to a record 101.8 mb/d. In 2024, non-OPEC+ producers will continue to lead global growth, projected at 1.6 mb/d, to an unprecedented 103.4 mb/d. A temporary easing of US sanctions on Venezuela in late October is expected to have only a marginal impact on supply, as production increases from the country’s battered oil sector will take time and investment.
Given the healthy cash flows, robust financial health, sustained capital discipline, and rapid technological progress in the industry, oil companies seem relatively well positioned to increase focus on the energy transition in 2024. This may entail concerted efforts to curtail emissions from hydrocarbons while augmenting investments in scalable and economical low-carbon solutions. In 2024, these companies should consider the following in their key decision-making:
Economic conditions: Any sharp movement of the US dollar against other currencies, combined with the trajectory of manufacturing activity and consumer spending, could impact inflation, thereby also influencing energy prices in 2024. Additionally, strong job growth could impact wage increases and contribute to higher inflation. These factors could play a role in shaping the dynamics of energy trade and influencing the competitiveness of energy-dependent downstream sectors worldwide.
Regulatory changes: The interplay of OPEC and its partners in managing energy supplies, alongside the situation in the Middle East, can significantly influence the equilibrium of hydrocarbon supply and demand. Other trends to watch include the level of hydrocarbon exports, especially LNG from the United States, and any regulatory changes that could impact clean energy initiatives.
Emerging technologies: The trajectory of EV sales worldwide (which is exhibiting some signs of weakness, as reflected in rising EV inventories, despite price cuts by automotive companies), shifts in mobility patterns, innovations in battery technology, changes in the EV value chain encompassing raw material sourcing and manufacturing, and advancement in engine technologies, including internal combustion engines, may influence the business models and investment strategies of petroleum refining and marketing companies.
Capital investments: How and where global upstream players deploy their capital in 2024 will likely signal fundamental changes in their investment and payout strategy, portfolio composition, and fuel priorities for years to come. Additionally, the market is expected to closely monitor how companies distribute their green capital between renewable electricity sources and alternative low-carbon options such as energy storage, CCS, hydrogen, and biofuels.
Supply chain: As of October 2023, the US rotary rig count stood at a yearly low of 623, demonstrating limited responsiveness to recent changes in energy prices. However, in 2024, the market will closely monitor the rate of and lag in operators’ responses, especially those of private operators. In addition, the availability of rigs and the contractual rates for these rigs will help gauge the level of activity and operational efficiencies in the US shale.
Merger, acquisition and joint ventures: The proposed acquisitions of Pioneer Natural Resources by ExxonMobil and of Hess Corp by Chevron Corporation for $64.5 billion and $60 billion, respectively, may usher a new era of mega deals and consolidation in the US upstream industry. Strong prices and limited drilling inventory (notably, as of October 2023, the number of drilled but uncompleted wells in the United States shale basins stood at 4,524, a 10-year low) may prompt a few large buyers to acquire new acreage and pursue enhanced operational efficiencies through mergers and acquisitions. Meanwhile, amid regulatory and geopolitical uncertainties, coupled with elevated capital costs, other entities may opt for a cautious wait-and-see strategy. An analysis of recent upstream deals reveals that, following company mergers, both buyers and sellers have collectively downsized their rig fleet by 30%.
The author, Nazir Ahmed Shaikh, is a freelance writer, columnist, blogger and motivational speaker. He writes articles on diversified topics. He can be contacted at nazir_shaikh86@hotmail.com.