The Oil Price War: Impact on Major Oil Companies

The current oil price war has resulted in a significant increase in Brent crude prices, rising from approximately $70 to $83 per barrel. However, the share prices of major oil companies have only seen modest gains, with Shell rising 4.9%, Chevron 2.6%, and ExxonMobil 0.9%. In contrast, U.S. shale producers such as Diamondback have outperformed, gaining up to 7% due to their lower cost base and insulation from Middle-East geopolitics.

Market Expectations

Analysts expect the current price rally to be short-lived, with the market pricing in a quick reversion to lower levels once the Strait of Hormuz stabilizes. However, if the conflict persists and Brent crude prices remain high, major oil companies could see stronger upstream earnings and potentially larger equity gains.

Historical Context

A 2015-2020 academic study found that oil companies’ shares exhibit positive elasticity to oil price shocks, but the magnitude varies with exposure to downstream operations and debt levels. The current modest share price moves are consistent with this pattern when the price shock is perceived as transient.

Forward-Looking Expectations

ExxonMobil and Chevron project cash-flow growth at an assumed $70 per barrel oil price through 2030, implying that any sustained price above $70 will boost earnings. BP and Shell have announced cost-saving programs that would allow them to maintain profitability even if Brent falls back to $65-$70.

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