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Less Is More

Posted November 1, 2021 at 10:00 am

What’s going on?

Chevron’s third-quarter earnings packed a punch on Friday, as the ongoing shortages prove that less really does mean more for the oil tycoon.

What does this mean?

Energy prices are on the up and up, and Chevron has been more than happy to take its cut: the company sold an average barrel of oil and liquefied natural gas for 90% more in the US than the same time last year, and natural gas for over three times as much. That led Chevron to post its biggest quarterly profit since 2013. All the extra cash looks like it’ll get put to good use too, with the company revealing it’s thinking about buying back more of its own shares – on top of the $3 billion a year it already tucks away.

Why should I care?

For markets: Oil giants are buying time.

Investors are keen on share buybacks in part because they reduce the number of shares on the market and push up the value of those remaining, and in part because they prove a company is optimistic about its own valuation. Energy companies, meanwhile, might be keen on buybacks because they’re a good way to convince investors to stick with them through their inevitably costly transitions to clean energy. Or at least, they were keen: the US government’s on the cusp of introducing new taxes on the tactic, which might suddenly make them a less appealing option.

The bigger picture: Ain’t nothin’ but a coal digger. 

The oil and gas shortage has come at an inopportune time, coinciding with low wind and nuclear output. That’s forced some electricity producers to burn coal instead, which has pushed up both demand for and the price of the dusky rubble. That’s good news for coal mining companies Arch Resources, Peabody Energy, and Glencore: the latter alone is up 12% in the last three months versus the UK stock market’s 3%.

Originally Posted on October 29, 2021 – Less Is More

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