This week is another full one for the oil and gas sector with BP (NYSE: BP) and ConocoPhillips (NYSE: COP) reporting 4Q19 results before the opening bell on February 4th, followed by France’s Total SA (NYSE: TOT) on the 6th. Investors will be keenly watching to see how these companies performed in 2019, but more importantly, what they have planned for 2020. All three stocks have a “Sell” Earnings Rating from Finscreener.com and all three have had their earnings revised down in the last 90-days by 2.4 – 14.4%. Weak earnings expectations for the sector are also evident in the share price performance of the oil and gas companies in the S&P 500 equity index. The energy sector is the worst-performing of the 11 industries that make up the index and is already down 11.2% in 2020.
Is This the End of Dirty Energy?
Energy sector weakness is causing some market pundits to call the end of the hydrocarbon sector. For example, well known CNBC commentator Jim Cramer said last week that oil stocks are the new tobacco (in terms of falling consumer and investor demand) and are in the death knell phase (with institutional investors undertaking divestments). His comments came immediately after shares of Chevron (NYSE: CVX), and ExxonMobil (NYSE: XOM) fell sharply during the trading session last Friday upon announcing their quarterly results. (For more see: Is the Energy Sector Running on Fumes?)
Is Tesla the New Saviour?
The down cycle for oil companies comes at a time when the stock price for electric vehicle manufacturer Tesla (NASDAQ: TSLA) recently hit an all-time high of $653 per share and has returned 108.82% over the past 12 months and over 200% in the last five years. Financial commentators have hated Tesla for years and have openly advocated shorting the stock citing factors such as the impending unraveling of demand for the cars. In the summer of 2019, when the stock hit a low of $177 per share, they were looking like they were on to something.
Australia’s Fires Changed the Narrative
Tesla’s financial results have begun to improve, with the company reporting total net income of $143 million in 3Q19 after reporting net losses of $408 million and $702 million respectively in 2Q and 1Q19. The profit stabilization gave a boost to the company’s share price, but perhaps an equally important factor behind the recent bull run in Tesla is the narrative around global warming caused by fossil fuels and the devastating fires in Australia broadcast across the world’s TV sets. A new generation will make different consumer choices that could be detrimental to fossil-based vehicles.
What Happened to “Beyond Petroleum”?
When BP reports its results this week, it will be interesting to see if there is anything new to say in terms of a post-hydrocarbon future. In 2000 the company launched its “Beyond Petroleum” campaign to show that BP stood for more than British Petroleum and that the company was investing in renewable energy. By 2013, however, the program was scrapped, and BP went back to what it knows best, producing oil and gas. Perhaps that renewable energy program was ahead of its time and 2020 is the year to explore its revival.
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.
