“Dear generalists, put your seatbelts on,” said analysts led by Christyan Malek. “While we believe the sector is in a structural up-cycle and oil should normalize higher, we expect prices and by extension energy equities to trade in a wider range, discounting an effective higher weighted average cost of capital associated with elevated price volatility and concerns around ESG/peak demand.”
The analysts do not share the peak demand fears, at least on its investment horizon that runs through 2030, saying the clean energy system is not mature enough to capture and distribute to end customers. “As a result, this places greater pressure on traditional fuels to fill the gap and meet rising EM-led demand growth. However, without increasing oil and gas capex, we risk energy deficits and acute inflation across the commodities complex.”
“This may lead to multiple oil-led energy crises in this decade, potentially much more severe than the gas crisis seen in Europe in 2022. Moreover, it serves to position OPEC firmly at the steering wheel of the global oil market, to take greater share of demand growth, while helping mitigate sharp price moves in either direction.”