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Positive Energy: Exxon Mobil, Shell and the General Election

The energy sector has had plenty of challenge in the last few years. We take a deeper look at what’s next for oil, gas and the wider market.
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This podcast isn’t personal advice. If you’re not sure what’s right for you, seek advice. Tax rules can change and benefits depend on personal circumstances.

This podcast isn’t personal advice. If you’re not sure what’s right for you, seek advice. Investments rise and fall in value, so investors could make a loss. Past performance is not a guide to the future.

Episode transcript

Susannah Streeter: Hello and welcome to this Switch Your Money On podcast from Hargreaves Lansdown with me, Susannah Streeter – Head of Money and Markets.

Sarah Coles: And me, Sarah Coles – Head of Personal Finance.

Susannah Streeter: So, Sarah – after a very dismal spring, it is so welcome to finally see a bit of sun and temperatures rising.

Sarah Coles: Yes – although I never feel confident enough in a British summer to put the woolly jumpers away completely.

Susannah Streeter: That is very wise – but I was given a furry gilet for Christmas and it is still in near constant use! But, certainly – the better weather is better for bills as well – given that the washing can go outside – and our use of energy is falling back.

Sarah Coles: Yes – and, with the energy price cap set to fall again at the start of July, it should mean bills fall that bit further too. But don’t get too complacent – it’s not just the weather forecast which is looking a little uncertain in the months ahead.

Susannah Streeter: Yes – there are forecasts that bills could head up again in the autumn, frustratingly. So, in this episode of the podcast, we thought we would take a look at what’s happening with energy prices – and what implications this has for our finances and our investments – in an episode we’re calling, ‘Positive Energy.’

Sarah Coles: We’re going to look at what the oil price has been up to and the forecasts for demand – and what this could mean for the sector. We’ll examine what wholesale prices indicate about the path ahead for energy bills – plus we’ll look at the implications of political parties’ plans for an extra windfall tax on companies operating in the North Sea.

Susannah Streeter: And, for a view from the forecourt – and what energy trends will mean for prices at the pumps – I’m pleased to say we’re going to chat to Simon Williams from the RAC.

Simon – d’you have any good news up your sleeve for drivers at the moment?

Simon Williams: Yes and no. The wholesale price of fuel has fallen – oil’s back below $80 a barrel – but everything depends on how fair retailers are with drivers and whether they pass on those savings to us on the forecourt.

Sarah Coles: Thanks, Simon – it’ll be good to catch up later in the podcast.

We’ll also hear from Sophie Lund-Yates – our Lead Equity Analyst – about the prospects for a number of companies in the sector. Plus Emma Wall will take the temperature of the sector with

regards to the energy transition – and get the view from a Fund Manager.

Susannah Streeter: But first, let’s look at what’s going on with energy prices.

Thankfully, we are no longer in crisis mode. We probably don’t need reminding too much that global prices for gas, electricity, oil, and other fuels started to increase from summer 2021, when economies began opening up after lockdowns and then prices spiked after Russia launched a full-scale invasion of Ukraine on 24 February 2022.

Wholesale prices for gas and electricity reached new record highs in the UK, Europe, and elsewhere during this energy crisis and haven’t returned to their earlier levels. Governments stepped in and took action here, as in other countries – in the short-term – and this has been mainly to support consumers facing much higher prices.

Sarah Coles: Energy prices have fallen since the summer of 2023 – and are due to fall again in July – but it’s still a painful time for households, as they’ll still be well above the pre-crisis levels.

The energy price for the April to June 2024 cap saw unit prices for gas and electricity both falling by 9%, but typical bills are still 39% higher than in winter 2021/22.

There’s good news in July – when prices will fall by £122 – and the typical dual fuel household will pay £1,568 a year – that’s the lowest in two years.

Susannah Streeter: But that is where the good news ends because prices are forecast to increase again in the autumn – and, for the winter and beyond, it’s going to be much harder to predict because forecasts this far out tend to be uncertain.

Prices at the pumps are also hard to predict. Generally speaking, lower oil prices lead to lower prices on forecourts, but oil-producing countries often act in agreement to push up prices on world markets.

Sarah Coles: Yes – so members of the powerful oil cartel – The Organization of the Petroleum Exporting Countries and its allies – a group of leading oil producers known as OPEC+ – met earlier this month and agreed to extend broad production cuts of 1.65 million barrels a day – announced last year – into 2025. That cut was due to expire at the end of this year.

Susannah Streeter: Additional cuts of 2.2 million barrels a day were also extended until September before being gradually phased out.

This strategy is aimed at reducing supply in an attempt to boost prices which had been hovering around 3-month lows.

Producers like Saudi Arabia need Brent Crude to be at $81 dollars a barrel or more to break even.

The extension to production cuts was largely expected, so hasn’t moved the dial much.

Brent Crude is still weighed down by speculation of lower demand amid record US production output. Worries have been swirling about stagnant demand in China – and also concerns that, if interest rates stay higher for longer in the US, it will lower energy requirements in North America. OPEC member countries are setting policy based on their expectation that fuel use will strengthen during the summer months and that demand will rise by 2.25 million barrels per day this year – and by 1.85 million in 2025.

But, if interest rate cuts are delayed in key markets – or Chinese economic data disappoints – prices could dip back and the additional voluntary cuts – which are due to end in September – could be prolonged further.

Sarah Coles: Softer demand also has implications for the big energy giants as well, with BP reporting lower profits amid the weaker oil price.

Then there are the political moves, which could have implications for the sector.

On the General Election campaign trail, Labour has committed to setting up Great British Energy – if they get elected. So that’s a publicly-owned clean and power firm, with a running cost to be paid through increasing the windfall tax on oil and gas company profits from the North Sea. This would mean the current energy profits levy would increase from 75% to 78%.

Susannah Streeter: However, it’s not clear exactly how much would be raised due to the volatility of oil and gas prices. A levy specifically on oil and gas in the North Sea is also likely to affect smaller companies rather than larger energy giants, given that they have less capacity to absorb tax changes – and it may lead to fewer contracts being clinched in the supply chain because of this. Labour also intends to draw new licensing rounds to a close, limiting future revenue streams for companies already operating on the UK’s continental shelf.

Sarah Coles: Labour wants to accelerate the UK’s solar and wind capacity and decarbonise the grid entirely by [2030 6:48]– five years earlier than the Conservative proposal. Significant upgrades to the UK’s electricity network are forecast to be needed to ensure cleaner technologies can be supported – for example, to enable the charging of electric vehicles.

Susannah Streeter: There’s clearly an awful lot going on in this space, so let’s focus on the implications all of this will have on the motoring sector – with Simon Williams from the RAC.

So, Simon – it has been a rollercoaster ride for the cost of driving in recent years – how are motorists faring?

Simon Williams: I think it’s fair to say motorists are losing out. If you remember – at 2023, the Competition Markets Authority concluded – after its investigation into retail fuel pricing – that drivers had lost out to the tune of £900m in 2022 – principally as a result of the oil price shooting up after the invasion of Ukraine by Russia – and the price of petrol hitting £1.91 on average – a new record – and diesel also at an average of nearly £1.99 per litre.

Prices dropped then, but they weren’t passed on by the fuel retailers – and that investigation was all on the back of the fact that we felt that the 5p duty cut – which was invoked by Mr Sunak when he was Chancellor – wasn’t being passed on by retailers – and then Kwasi Kwarteng asked the CMA to investigate – and everything has been proven since. But, unfortunately, those things are still carrying on – from our data.

Sarah Coles: So, I suppose the old trend is that petrol prices go up like a rocket and then fall like a feather. It sounds very much like this is what’s happening now – but why is that? Why is there no pressure on retailers to pass on those falling prices?

Simon William: ‘Cause the CMA are now the price monitoring body. The legislation’s been passed – just before the election was called – to make a Pumpwatch scheme possible. There’s a voluntary scheme that’s already in place. 14 of the biggest retailers are providing their prices on a daily basis – and the likes of the RAC are looking at those – and we can see very clearly what’s going on with prices – and that they aren’t falling enough in relation to the reduction we’ve seen in the wholesale cost.

We’re really looking for action. Only the other week, I wrote to Energy Secretary, Claire Coutinho, about this – and drawing it to her attention. She’s been working hard to get the Pumpwatch scheme across the line – which she has now finally done. But we need the Competition Markets Authority – the price-monitoring body – to have meaningful powers – in order that the supermarkets, in particular – and really take notice of what they’re saying.

Susannah Streeter: Is that what you want to see from any new government – really this to be enforced much more strictly? How should this be done?

Simon Williams: The Government has done all it can – and has put the mechanisms in place. We will have a Pumpwatch scheme – the CMA will be the price-monitoring body – but they just must have meaningful power. Without that, there’s probably not quite enough stick to keep the retailers in line.

Sarah Coles: One of the things we always used to say is that, in areas where you’ve got a supermarket, they’re much more competitive – and so, therefore, you see independent retailers bring their prices down to match the supermarkets. It seems that a lot of this – so the supermarkets taking their foot off the pedal when it comes to keeping prices competitive. D’you think that’s part of the broader retail picture – and the fact that they’re wrestling with higher food costs – and they’re trying to find the margins where they can?

Simon Williams: Something is different – and they would perhaps have said – or maybe they say now – that they’ve treated fuel as a loss-leader – as a footfall driver – to get people into store. But we know that supermarkets are vital to the price we pay for fuel – particularly in terms of the average price – because they only have a fifth of forecourts, but they sell around half of all the fuel sold.

We have a situation now where we’re looking at prices regularly – we are analysing the CMA data – and I can see now – just by looking at my screen here – just for petrol, there’s a 7p per litre difference between the lowest price and the highest price – and that’s just for one supermarket. Something we pointed out, just recently – Asda used to pride itself on being the cheapest supermarket, but they now have a difference between their highest and lowest prices of 36 pence a litre. That’s the same supermarket in control of all those forecourts – regardless of whether they’re at supermarket sites – or on A roads or B roads, etc – but they’re charging such a wildly different price for the very same product. This is something we want the CMA to get to grips with – because, ‘How can you do that?’ – and the same applies to diesel.

Susannah Streeter: Amid all of this, we have this transition towards electric vehicles. What’s going on with pricing in terms of the cost of charging? D’you have an eye on that too – and how d’you view the overall transition to EVs?

Simon Williams: The overall transition to EVs is going reasonably well. We have more than a million EVs on the road now, but there are some hiccups with that. Most of the growth has been led by companies purchasing electric vehicles for their company employees.

There’s not enough purchasing of EVs – or leasing of EVs – by private individuals – and that’s something that needs to change. We know that the high upfront costs of EVs is putting people off making the switch – but there’s another massive disparity which we’re looking to address, and that’s the cost of charging in public.

At the moment, if I charge my electric car at home, I’ll only pay 5% VAT on that electric – but, if I charge it in public, I will pay 20% VAT – and there’s around 30% of people living in the UK that don’t have the ability to charge at home.

We now have around 60,000 public charges – which is great. We did some work recently with Zapmap and we found that there’s been a big shift in supermarkets installing rapid and ultra-rapid chargers. You might well pay a premium for faster charging, but if the VAT was to be reduced by 15%, that would alleviate a lot of that burden.

Susannah Streeter: What are your predictions for prices at the pumps, going forward? You’re doing a lot of work in trying to even out that disparity in pricing right across the country – when we talk about the oil price, d’you think there is a glimmer of hope ahead – in terms of the prices people have to pay?

Simon Williams: The data’s telling us so, but a lot depends on the behaviour of the retailers.

Years ago, we would spot the wholesale prices coming down by around 4p a litre – consistently, over a number of days. We would call for a cart and then one of the supermarkets would actually cut the price. Now, they just stand very strong and refuse to cut the prices – saying that their costs have gone up. Nothing seems to happen – even when the CMA pointed out, just a few weeks ago, that they were concerned about higher than normal margins.

We have the ‘MyRAC’ app – which has a free feature in it for ‘Finding the cheapest prices near you.’

There’s never been more transparency of pricing, yet prices – and the competition between retailers – isn’t really working – and so nobody’s really driving the price down.

Some independents actually charge a far better price than the supermarkets – which goes against

everything we’ve said for many years.

Sarah Coles: D’you think there comes a point when it comes driven by motorists just choosing not to drive? So, there comes a time when petrol is so expensive that drivers choose to stay home for a bit – and that’s something that will put the pressures on the retailer to think, ‘We do need to actually well some petrol – so we need to bring the prices down?’

Simon Williams: That makes sense on one hand – but, on the other, it doesn’t – because 8 in 10 people tell us that they couldn’t get by without having access to a car. So, unfortunately, in this country – where public transport is not that great – unless you live in London – you really don’t have a chance – and public transport generally doesn’t fit in with people’s lives. So, like it or not, the car’s really important to this country – so this is why we stand up for drivers and do what we do – campaigning on fuel – and campaigning on other issues – trying to get decent road surfaces to drive on. That’s a big problem – generally, the number one issue with drivers.

Last year, we dealt with around 30,000 pothole-related breakdowns – where things that had been more likely to be caused by the road surface being poor – damaged shock absorbers – broken suspension springs – and distorted wheels – and that’s far too many – particularly as the average one costs about £450 to repair.

Susannah Streeter: Thank you so much, Simon – it’s been really fascinating to talk to you on the podcast today.

Simon Williams: Thank you very much.

Sarah Coles: So, now let’s bring in Sophie Lund-Yates – Lead Equity Analyst – who has been a regular on this podcast ever since it launched almost 3 years ago – but this is her last podcast with us.

Susannah Streeter: Sophie – I can’t believe we’re saying this, but can you give us the lowdown on the final three stocks you’ve been watching for us – starting off with Exxon Mobil?

Sophie Lund-Yates: Exxon Mobil is one of the world’s largest publicly-traded oil and gas companies. It’s an absolute giant in the energy sector – known as a ‘Supermajor.’

They’re not just about pumping oil. Exxon is deeply involved in all stages of the energy lifecycle. They explore for oil and natural gas – drill and produce it – refine it into fuels and chemicals – and then sell these products, globally. As an idea of scale – their operations span across six continents.

Sarah Coles: Thanks for the overview, Sophie – but there are some ESG considerations here, aren’t there?

Sophie Lund-Yates: Yes, definitely. Much like other oil and gas majors, the group’s heavy reliance on fossil fuels makes Exxon Mobil vulnerable to regulatory changes – and the global shift towards renewable energy. It’s also worth keeping in mind that Exxon has been accused of being more conservative in its approach to renewable investment, when compared with peers who are more aggressively pivoting towards sustainable energy. This obviously, potentially, positions those names better for the future energy landscape.

The decision to buy Pioneer Natural Resources – in a $59.5bn deal – has also heightened criticism. The deal is very much about boosting oil production, despite expectations that climate change will encourage a switch to renewables.

Looking to the shorter-term – as an idea of the group’s financial performance – Exxon generated first-quarter earnings of $8.2bn and $14.7bn of cash flow from operating activities. This robust performance helped underpin an increase in shareholder return. The forward dividend yield is around 3.5% - though, please remember, no dividend is ever guaranteed.

Susannah Streeter: Who’s next, Sophie?

Sophie Lund-Yates: Given the nature of this episode, I’d love to talk about BP, but I’m very aware I did that in a recent episode. So, if you’d like to hear more about my thoughts on them – including their more aggressive renewable strategy – take a listen to the last episode called, ‘Home Advantages,’ where we chat through investment opportunities in the UK.

Sarah Coles: Fair enough – thanks, Sophie.

What’s the third and final name this week?

Sophie Lund-Yates: That would be Shell – which is another global powerhouse in the energy industry. They aren’t just any oil and gas giant – Shell is one of the world’s largest, with operations in more than 70 countries.

Shell is also involved in virtually every aspect of the energy sector. They explore for oil and natural gas, produce and refine those resources, and even market and sell them, worldwide.

They’re investing heavily in wind, solar, and electric-vehicle charging infrastructure – and it’s the traditional oil production that allows the group to invest in this area. While there are resources being funnelled towards the energy transition, Shell has come under fire for greenwashing claims – and there are those that think they could be doing more – or at least be more transparent.

There’s a dividend yield of 4.3% on offer – though that’s not guaranteed. The group’s valuation is 8 times expected earnings – so a bit lower than the 10-year average – which reflects some of the concerns about the long-term renewables commitment.

Susannah Streeter: Thank you, Sophie. Before we go, let’s give you a mighty round of applause – as it is your final podcast with us!

Sophie Lund-Yates. It is indeed! It’s a very sad day for me. Thank you to our fab listeners – it’s been brilliant – and just thank you for having me.

Susannah Streeter: Very emotional! While we come to terms with change, let’s hear from our Head of Investment Analysis and Research – Emma Wall – who’s been exploring all of this – from a fund

perspective – with Seb Beloe of WHEB Asset Management.

Emma Wall: Hello, Seb.

Seb Beloe: Hello.

Emma Wall: We’re talking today about oil – really important topic. I thought we’d take a slightly different angle with you because you are a sustainability master – and I thought we’d talk about the carbon transition – and life after oil – life after fossil fuels.

Firstly, is oil needed to fuel the carbon transition?

Seb Beloe: Certainly, in the short-term, it would be catastrophic if we just literally shut off the taps today – not just from a transport point of view, but also so much of our lives are still dependent on petrochemicals as well. Having said that, the objective should be very much to minimise its role as quickly as possible.

That’s already happening, actually. If you look at China – which has been the big growth story for many markets, including oil and gas, for a long time... this past month, the majority of their new road vehicles – sold in that market – are electric vehicles. They’ve got over 60% next year – according to the IEA.

Emma Wall: There are investable alternatives to oil, aren’t there? What do you consider to be the best of those options?

Seb Beloe: The future world that people talk about is very much a current world. We are already in this world, where it’s increasingly zero-carbon. In California, they have gone for 45 days with zero fossil fuels on their electricity grid – and that is majority solar wind – and, increasingly in that market, battery electric storage as well.

This is not about the future – this is already happening today – and, of course, the companies that are enabling that to happen are, in many cases, listed businesses that we can invest in – and do invest in – and there are all sorts of ways that you can do that. Whether that’s through renewable businesses, themselves – the companies that make the equipment – the wind turbines – companies like Vestas and GE – Siemens. The solar panels -we invest in a company called First Solar – which is the US’s largest solar module manufacturing business. But it’s not just them – it’s also utilities and infrastructure – grid businesses as well – the companies that make the capital equipment – the infrastructure. And we would also argue that companies that enable the reduction in energy use – more efficient use of energy – is also a way of investing in energy. So, there are all sorts of companies that we can invest in – whether that’s in industrial automation – or building efficiency – electrification.

Emma Wall: Are big fossil fuel companies helping or hindering the carbon transition?

Seb Beloe: Certainly, if we could deal with the ‘Helping’ question first. Helpfully, the International Energy Agency have recently published their World Energy Outlook document – and BloombergNEF (New Energy Finance) have also just published theirs too. So, there’s lots of stats in there as well about the transition – and, when you look at the oil and gas companies – they are very small investors in the transition. The spend of oil and gas companies – only 4% of it goes into clean energy – 96% is still going into fossil fuels. So, they are a very small part of the investment that’s going into clean energy.

In 2023, there was more money – for the first time – in the year. More money went into renewables and grid technologies than went into fossil fuels. About £1.2tn went into renewables and grid – and about £1.1tn went into fossil fuels. That gap will grow this year – and going forward. So, oil and gas is a declining proportion – has been a declining proportion for some time and is now a minority proportion of energy investment.

Oil and gas companies tend to want to claim that they are a big part of the solution. There was a piece of work that was done a few years ago – looking at their advertising of 3,500 marketing messages. 60% talked about their green claims – and that was at a time, with less than 1% of their investments were going into clean energy. So, there’s a massive mismatch in terms of the public perception of the importance of these companies – and the reality of where the money’s coming from. It’s not coming from oil and gas – so they’re not part of the solution – they’re not helping.

The question then becomes, ‘Are they hindering?’ In a way, I’m less interested – as an investor, I’m less interested in this. But, someone who’s concerned about this issues, just as a citizen – I am concerned about the role that they have played in actively hindering progress on climate change – and continue to play that role as well – whether that’s through misinformation, lobbying – policy support that they provide to politicians who are anti this transition. But, in a way, the question is, ‘Are they helping?’ – and the answer is, ‘No, they’re not, really’ – but there’s a lot of people who are. There is a lot of money going into these technologies – and it’s coming from other sources, not from the oil and gas sector.

Emma Wall: Seb – really interesting to talk to you – thank you very much.

Sarah Coles: That was Emma Wall – talking to Seb Beloe of WHEB Asset Management – and please bear in mind that these are the views of the Fund Manager and are not individual stock recommendations.

Susannah Streeter: You’re listening to Switch Your Money On from Hargreaves Lansdown.

Before we go, there’s time for a quick stat of the week – and, for this one, we are going to delve into your favourite topic, Sarah – Tax – and, in this case, the tax on petrol. We do seem to be talking a lot about tax at the moment – so we thought we’d continue the theme.

At the moment, you’ll pay 147.5 pence for a litre of petrol, but how much of that do you think is tax?

Sarah Coles: It’s a really painful amount. I know that because you have fuel duty – and then, on top of that, you’ve got VAT – and it’s around 75 pence – but it does go up and down, depending on the price of petrol – so I’ll go for somewhere around 75 pence.

Susannah Streeter: I’ll give you that – because it’s actually 77.53 pence – which is over half the total price. Plus there’s almost a penny of environmental taxes and fees, so it all adds up.

Sarah Coles: I know – it’s horribly expensive. I thought the financial pain would end when my son passed his driving test, but now I have to pay for his petrol to get him to school – and it’s ruinous.

Susannah Streeter: Oh, yes – the financial pain never ends!

That’s all from us for this time – but, before we go, we do need to remind you that this was recorded on 10th June 2024, and this information was correct at the time of recording.

Sarah Coles: Nothing in this podcast is personal advice – you should seek advice if you’re not sure what’s right for you. Investments rise and fall in value – so you could get back less than you invest – and past performance is not a guide to the future.

Susannah Streeter: Yes – this is not advice or a recommendation to buy, sell, or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.

Sarah Coles: And this hasn’t been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication.

Susannah Streeter: Non-independent research is not subject to FCA rules prohibiting dealing ahead of research – however, HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing.

Sarah Coles: You can see our full non-independent research disclosure on our website for more information.

So, all that’s left is for us to thank our guests: Simon, Seb, Sophie – for the final time – Emma, and our Producer, Elizabeth Hotson.

Susannah Streeter: Thank you very much for listening. Goodbye, Sophie – we, though, will be back again soon. Goodbye!