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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
When oil prices go up, says President Donald Trump, the US makes “a lot of money”. That is simplistic, of course. But it’s true that high energy prices are a transfer of value from those who buy it to those who produce it.
Shares in oil and gas giants such as Exxon, Shell and BP have risen since the start of the war in Iran and the closure of the Strait of Hormuz. The benchmark Brent crude price is up about 65 per cent this year, which is good in narrow financial terms for those who suck the stuff out of the ground, and less good for heavy users of oil and gas — much of Europe and Asia, industries such as chemicals and motorists stung at the pump.
But while this tide does lift all boats, some are cresting higher than others. In part, the difference depends on what, exactly, each one sells. European natural gas prices have risen by some 80 per cent. And the mark-up companies can claim when they refine crude oil to make gasoline has roughly doubled. These larger jumps reflect the fact that liquefied natural gas and refined products are not stockpiled to the same extent.
That helps explain why Spain’s Repsol — which has one of the largest refining operations relative to its overall size — is among the best performers in Europe. Finland’s Neste, too, is up about 30 per cent over the past month. The refiners are followed closely by big sellers of natural gas, including Norway’s Equinor.
At the other end of the commodities spectrum, natural gas prices at the US’s Henry Hub are actually lower than where they started the year. That’s less counterintuitive than it sounds: the US is a net exporter of natural gas, and the amount it can export is limited by the infrastructure available. Exxon, by way of example, is only up a few percentage points in the past month.
Offsetting the positive impact of higher prices, global energy companies have to contend with disruption in regions where they have people and assets. That particularly affects those who produce oil and gas that is exported via the Strait of Hormuz. France’s TotalEnergies and Exxon itself are among those with the highest percentage of their production dependent on the strait, according to Goldman Sachs analysts.
Perhaps counter-intuitively, those who benefit most from the current commodity price leap could be those who most needed the help. Producers with higher costs and a greater share of their profit earmarked for servicing debt will see bigger swings in earnings.
BP is one of those. Activist investor Elliott has been prodding the UK oil major to cut bloated costs and reduce its debts. The case for doing so remains undimmed. But a windfall from higher prices might help BP dig itself out of a hole, or at least buy it some time. A global energy crisis, while unwelcome, reduces the chances of the company having one of its own.