S&P Global Ratings may cut the credit ratings of major oil companies as the world shifts from petroleum-powered engines to electric vehicles, the agency announced last week.
General Motors has revealed plans to end the manufacture of gas- and diesel-powered vehicles by 2035, the same year that California will ban the sale of such vehicles under an executive order signed last September by governor Gavin Newsom. In December 2018, Volkswagen announced it would stop making fossil-fuel-powered cars by 2026.
Also, last August the Dow Jones Industrial Average delisted ExxonMobil, which had been a part of the index since 1928, when it was Standard Oil of New Jersey, and replaced it with Tesla.
The rating agency, one of the world’s most influential, has put Chevron, ConocoPhillips, ExxonMobil, Royal Dutch Shell, French oil giant Total, and several Chinese oil companies on a “downgrade watch,” meaning that it could cut their credit ratings in the future, although any cuts may not come soon.
When a company’s credit rating is downgraded, the company typically has to pay higher interest rates to borrow because lenders see the loans as riskier. Also, some investment funds are forbidden by their own rules to buy bonds from companies with lower credit ratings.
S&P now views the entire oil and gas industry as being “moderately high risk” due to “increased and likely increasing risks for oil and gas producers.”
Oil and gas producers face “significant challenges and uncertainties engendered by the energy transition, including market declines due to growth of renewables,” S&P said in its announcement, citing “pressures on profitability, specifically return on capital, as a result of high dollar capital investment levels over 2005-2015 and lower average oil and gas prices since 2014.”
Losing Big
With the global economic shutdown slashing demand for fossil fuels when the world already was awash in a glut of oil, Chevron reported losing $665 million in 2020’s fourth quarter, bringing its total loss for the year to $5.5 billion.
The oil and gas giant’s stock has fallen more than 23 percent in the last 12 months, still a better performance than some of its competitors.
In 2019, Chevron posted a $3-billion profit.
TREND FORECAST: For more than two years, we have been warning that the oil industry is becoming a more speculative, short-term game.
As we note in our “U.S. MARKETS OVERVIEW,” oil prices are overtly being manipulated to artificially keep the prices higher.
And the recent announcement by General Motors of planning to sell only EVs by 2035 – which will drive down oil prices as autos go electric – is more hype than reality.
We have written in detail for several years that EV will not become reality until a higher quality invention than the current battery has been invented.
